Capital Flows and Wealth Distribution in a Global Economy with Asymmetric Countries

Abstract

Focusing on international differences in firms' production efficiency, financial constraints, savers' time discount rates, and tax policies, this study explores how these factors affect a country's long-run asset position and the global distribution of wealth. Using a dynamic two-country model with financial frictions and firm heterogeneity, we clarify the roles of these asymmetric factors in the long-run equilibrium of the world economy. Due to the tractability of our model. we can obtain key results analytically using simple graphical expositions. Numerical examples are also provided to evaluate the comparative statics in the steady state and transition dynamics of the global economy.

Keywords: two-country model, financial frictions, firm heterogeneity, wealth distribution, capital mobility