The Effects of International Financial Integration in a Model with Heterogeneous Firms and Credit Frictions

Christiane Clemens and Maik Heinemann

DEGIT Conference Papers from DEGIT, Dynamics, Economic Growth, and International Trade

Abstract: This paper examines the pattern of international capital flows in a two–sector dynamic general equilibrium heterogeneous agent model with financial frictions and idiosyncratic entrepreneurial risk. Countries differ only with respect to the tightness of constraints on the domestic credit market. The results provide an explanation for the ‘Lucas paradox’, i. e. the empirical observation of capital flowing from poor to rich countries, where lending countries are characterized by tighter domestic constraints. International integration only indirectly mitigates negative output and welfare effects from financial constraints on domestic credit markets. The effects are triggered by adjustments in the real interest rate to global real return. We observe an accumulation–driven rise in the entrepreneurship rate and positive output effects for countries with relatively tight constraints who generally benefit from financial integration. The macroeconomic effects can be adverse for the capital–importing country which may suffer from a decrease in GNP in the integrated economy. The model is calibrated to match standard macro data, entrepreneurship rates, and Gini coefficients from OECD countries.

Keywords: DSGE; financial constraints; financial market integration; international capital flows; heterogeneous agents; occupational choice (search for similar items in EconPapers)
JEL-codes: C68 D3 D8 D9 F4 G0 J24 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2010-09
References: Add references at CitEc
Citations:

Downloads: (external link)
http://degit.sam.sdu.dk/papers/degit_15/c015_046.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to degit.sam.sdu.dk:80 (No such host is known. )

Related works:
Journal Article: THE EFFECTS OF INTERNATIONAL FINANCIAL INTEGRATION IN A MODEL WITH HETEROGENEOUS FIRMS AND CREDIT FRICTIONS (2019)
Working Paper: The Effects of International Financial Integration in a Model with Heterogeneous Firms and Credit Frictions (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:deg:conpap:c015_046

Access Statistics for this paper

More papers in DEGIT Conference Papers from DEGIT, Dynamics, Economic Growth, and International Trade Contact information at EDIRC.
Bibliographic data for series maintained by Jan Pedersen ().