The Lucas Paradox and the Quality of Institutions: Then and Now

16 Pages Posted: 11 Aug 2010

See all articles by Moritz Schularick

Moritz Schularick

University of Bonn - Department of Economics; Centre for Economic Policy Research (CEPR)

Thomas Michael Steger

University of Leipzig/Institute for Theoretical Economics/Macroeconomics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: February 1, 2008

Abstract

In the first era of financial globalization (1880-1914), global capital market integration led to substantial net capital movements from rich to poor economies. The historical experience stands in contrast to the contemporary globalization where gross capital mobility is equally high, but did not incite a substantial transfer of savings from rich to poor economies. Using data for the historical and modern periods we extend Lucas’ (1990) original model and show that differences in institutional quality between rich and poor countries can account for the sharply divergent patterns of international capital movements.

Keywords: capital market integration, financial globalization, economic history

JEL Classification: F15, F21, F30, N10, N20, O11, O16

Suggested Citation

Schularick, Moritz and Steger, Thomas Michael, The Lucas Paradox and the Quality of Institutions: Then and Now (February 1, 2008). Available at SSRN: https://ssrn.com/abstract=1656282 or http://dx.doi.org/10.2139/ssrn.1656282

Moritz Schularick

University of Bonn - Department of Economics ( email )

Bonn
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Thomas Michael Steger (Contact Author)

University of Leipzig/Institute for Theoretical Economics/Macroeconomics ( email )

Grimmaische Str. 12
D-04109 Leipzig
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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