Financial integration, entrepreneurial risk and global dynamics
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Angeletos_Financial Integration.pdf
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Author(s)
Angeletos, George-Marios
Panousi, Vasia
Date Issued
February 2011
Journal
Journal of Economic Theory
Publisher
Elsevier
Citation
Angeletos, George-Marios, and Vasia Panousi. “Financial Integration, Entrepreneurial Risk and Global Dynamics.” Journal of Economic Theory 146, no. 3 (May 2011): 863–896.
Version
Author's final manuscript
Abstract
How does financial integration impact capital accumulation, current-account dynamics, and cross-country inequality? We investigate this question within a two-country, general-equilibrium, incomplete-markets model that focuses on the importance of idiosyncratic entrepreneurial risk—a risk that introduces, not only a precautionary motive for saving, but also a wedge between the interest rate and the marginal product of capital. Our contribution is to show that this friction provides a simple explanation for the emergence of global imbalances, a resolution to the empirical puzzle that capital often fails to flow from the rich or slow-growing countries to the poor or fast-growing ones, and a set of policy lessons regarding the intertemporal costs and benefits of capital-account liberalization.
MIT Department
Massachusetts Institute of Technology. Department of Economics
Terms of Use
Creative Commons Attribution-Noncommercial-NoDerivatives
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1016/j.jet.2011.02.001
