The Global Financial Resource Curse

Gianluca Benigno, Luca Fornaro and Martin Wolf

No 915, Staff Reports from Federal Reserve Bank of New York

Abstract: Since the late 1990s, the United States has received large capital flows from developing countries and experienced a productivity growth slowdown. Motivated by these facts, we provide a model connecting international financial integration and global productivity growth. The key feature is that the tradable sector is the engine of growth of the economy. Capital flows from developing countries to the United States boost demand for U.S. non-tradable goods. This induces a reallocation of U.S. economic activity from the tradable sector to the non-tradable one. In turn, lower profits in the tradable sector lead firms to cut back investment in innovation. Since innovation in the United States determines the evolution of the world technological frontier, the result is a drop in global productivity growth. We dub this effect the global financial resource curse. The model thus offers a new perspective on the consequences of financial globalization, and on the appropriate policy interventions to manage it.

Keywords: low global interest rates; global productivity growth; capital flows; export-led growth; U.S. productivity growth slowdown; international financial integration; Bretton Woods II (search for similar items in EconPapers)
JEL-codes: E44 F21 F43 F62 O24 O31 (search for similar items in EconPapers)
Date: 2020-02-01
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: The global financial resource curse (2023)
Working Paper: The Global Financial Resource Curse (2020)
Working Paper: The Global Financial Resource Curse (2020)
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