Financial Integration and Growth in a Risky World

53 Pages Posted: 21 Dec 2015 Last revised: 3 Jan 2016

See all articles by Nicholas Coeurdacier

Nicholas Coeurdacier

Sciences Po

Hélène Rey

London Business School; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Pablo Winant

Bank of England

Date Written: December 2015

Abstract

The debate on the benefits of financial integration is revisited in a two-country neoclassical growth model with aggregate uncertainty. Gains from more efficient capital allocation and gains from risk sharing are accounted for simultaneously|together with their interaction. Global numerical methods allow for meaningful welfare comparisons. Gains from integration are quantitatively small, even for riskier and capital scarce emerging economies. These countries import capital for efficiency reasons before exporting it for self-insurance, leading to capital ows and growth reversals along the transition. This opens the door to a richer set of empirical implications than previously considered in the literature.

Suggested Citation

Coeurdacier, Nicholas and Rey, Helene and Winant, Pablo, Financial Integration and Growth in a Risky World (December 2015). NBER Working Paper No. w21817. Available at SSRN: https://ssrn.com/abstract=2706318

Nicholas Coeurdacier (Contact Author)

Sciences Po ( email )

27 rue Saint-Guillaume
Paris Cedex 07, 75337
France

Helene Rey

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Pablo Winant

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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