Journal Article

The Elusive Gains from International Financial Integration

Pierre-Olivier Gourinchas and Olivier Jeanne

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 73, issue 3, pages 715-741
Published in print July 2006 | ISSN: 0034-6527
Published online July 2006 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2006.00393.x
The Elusive Gains from International Financial Integration

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  • Macroeconomics: Consumption, Saving, Production, Employment, and Investment
  • International Factor Movements and International Business
  • Economic Development

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Standard theoretical arguments tell us that countries with relatively little capital benefit from financial integration as foreign capital flows in and speeds up the process of convergence. We show in a calibrated neoclassical model that conventionally measured welfare gains from this type of convergence appear relatively limited for the typical emerging market country. The welfare gain from switching from financial autarky to perfect capital mobility is roughly equivalent to a 1 % permanent increase in domestic consumption for the typical non-OECD country. This is negligible relative to the welfare gain from a take-off in domestic productivity of the magnitude observed in some of these countries.

Keywords: E22; F21; O16

Journal Article.  12801 words.  Illustrated.

Subjects: Macroeconomics: Consumption, Saving, Production, Employment, and Investment ; International Factor Movements and International Business ; Economic Development

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