The Marginal Product of Capital, Capital Flows, and Convergence

Chatterjee, Sirsha; Naknoi, Kanda

doi:10.1257/aer.100.2.73

Cited by 6 publications

(4 citation statements)

References 20 publications

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“…By an open-economy neoclassical growth model, Escot and Galindo (2000) show that the international capital flows can affect the convergence of productivity growth. Chatterjee and Naknoi (2010) record that the size of foreign capital transformed into domestic physical capital is large only in a few countries, but small in most of countries. Galindo and Escot (2004) provide evidence that the capital flows can exert a positive impact on the convergence of productivity growth.…”

Section: The International Capital Flowsmentioning

confidence: 99%

International capital flows in club of convergence

Hung¹,

Thuy²

2020

JES

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PurposeThe paper analyzes the pattern of international capital flows, accounting for the convergence on economic growth.Design/methodology/approachThe paper employs an empirical analysis combined with a theoretical model. The evidence is based on a cross-section regression over a sample of 172 economies. And the model is an open multi-country overlapping generation (OLG) economy.FindingsThe empirical evidence records that the pattern of international capital flows in the club of convergence can diverge from the pattern in the club of unconvergence. A higher productivity growth rate is associated with more net capital inflows in the club of convergence but less net capital inflows in the club of unconvergence. The theory shows that proximity to world technology frontier can explain the divergence of capital flows.Research limitations/implicationsThe result can account for controversies between theories on the cross-border capital flows: allocation puzzle, up-hill capital flows and neoclassical growth model.Originality/valueThe paper combines both the empirical analysis with the theoretical model construction to account for the role of convergence of economic growth on determining the pattern of international capital flows.

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Section: The International Capital Flowsmentioning

confidence: 99%

International capital flows in club of convergence

Hung¹,

Thuy²

2020

JES

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“…Their simulation results show that the rate of return on capital can be expected to fall by about 80 to 90 basis points until 2050 with a corresponding increase of wage. As in the world of free capital mobility, capital flows from low-return to high-return locations (Chaterjee and Naknoi 2007); fall in return on capital would cause capital outflow and the real exchange rate to depreciate.…”

Section: Review Of the Relevant Literaturementioning

confidence: 99%

Population Age Structure and Real Exchange Rate in OECD Countries: An Empirical Analysis

Hassan¹,

Salim²,

Bloch³

2020

Journal of International Logistics and Trade

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This article examines the impact of population age structure on the real exchange rate. Data on a panel of 22 OECD (Organization of Economic Cooperation and Development) countries over 1980-2015 period are used to estimate the empirical model. Using fixed effect model the paper finds that different age cohorts have a significant influence on the real exchange rates in the sample countries. The results are mostly consistent with the theoretical framework discussed in the paper and also with the findings of previous studies in this area. These results have important policy implications given the fact that the population is ageing in almost all the OECD economies these days.

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“…By introducing net FDI and debt financial flows separately, we can study which components of aggregate financial flow are effectively transformed into physical capital. We intend to compare our results with those in Chatterjee and Naknoi (2010), who study the frictions in the transformation of financial capital into physical capital. The data on FDI and debt flows are from Lane and Milesi-Ferretti (2007).…”

Section: Robustness Checkmentioning

confidence: 95%

Three Essays on Financial and Trade Integration

Bondarenko¹

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Three Essays on Financial and Trade Integration Elena Bondarenko This dissertation consists of three essays on financial and trade integration. Financial and trade integration are the processes though which a country's financial and commodities markets become more integrated with those in other countries. The first essay addresses the determinants of financial integration, the second essay examines the contribution of financial and trade integration to the convergence in marginal products of capital, the third essay accesses the effect of international trade in physical capital on economic growth. The first essay addresses the empirical question of whether international financial flows are responsive to capital account restrictions or liberalization policies. The effect of capital controls on financial flows differs across countries and types of financial flows (FDI, portfolio equity, and debt). Capital controls are found to be effective for all types of international capital flows in developed countries. However, short-term volatile flows are not responsive to capital controls in developing countries. Capital controls can be an effective policy tool in developed countries with liberalized international trade and adequate reserves. Policies in developing countries should facilitate FDI flows and restrict non-productive short-term equity or debt flows in order to maintain macroeconomic stability and lower the probability of a crisis. The second essay examines the determinants of convergence in the marginal product of capital. The essays derives an empirical model from Solow's growth model and augment it to include global factors of financial flows and capital embodied in commodity trade. The marginal products of capital converges, however, this convergence is conditional upon country-specific variables such as reproducible capital share. Saving rates, foreign direct investment, and international trade are essential determinants of this conditional convergence. There is no evidence that debt financial flows reduce the global difference in the marginal product of capital. International trade also contributes to this convergence by equalizing international prices of investment and consumption goods. The final essay estimates the effects of inflows of foreign physical capital on the output per capita growth. The essay uses an open economy extension of a neoclassical growth model to include the share of foreign physical capital in domestic investment. Inflows of machinery and capital equipment reinforce a positive growth in output per worker. Non-industrial (non-OECD) countries that rely on foreign high-quality capital grow faster. The findings suggest that policies should facilitate trade liberalization in developing countries and strengthen the domestic ability to absorb technological benefits from abroad. iii Acknowledgments I would like to express my gratitude to my dissertation advisor and chair, Professor Shuichiro Nishioka, for taking me on as an advisee, for the guidance, time and constant support during my doc...

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The Marginal Product of Capital, Capital Flows, and Convergence

Cited by 6 publications

References 20 publications

International capital flows in club of convergence

International capital flows in club of convergence

Population Age Structure and Real Exchange Rate in OECD Countries: An Empirical Analysis

Three Essays on Financial and Trade Integration

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