International Finance and Income Convergence: Europe is Different

38 Pages Posted: 26 Mar 2007

See all articles by Abdul G. Abiad

Abdul G. Abiad

International Monetary Fund (IMF) - Research Department

Daniel Leigh

International Monetary Fund (IMF)

Ashoka Mody

International Monetary Fund (IMF) - Research Department

Date Written: March 2007

Abstract

Recent studies conclude that the ongoing global financial integration may have had little or no value in advancing economic growth, especially in poor countries. Capital is often found to flow "uphill" from poor to rich countries. And, when it does flow into the less developed economies, it is negatively correlated with growth, calling into question the desirability of foreign capital. In this paper we report that Europe-including the new member states of the European Union-provides a counterexample to these global anomalies. With increasing financial integration, capital in Europe has traveled "downhill" from rich to poor countries, and has done so with gathering strength. These inflows have been associated with significant acceleration of income convergence.

JEL Classification: F43, F21, F36

Suggested Citation

Abiad, Abdul G. and Leigh, Daniel and Mody, Ashoka, International Finance and Income Convergence: Europe is Different (March 2007). IMF Working Papers, Vol. , pp. 1-36, 2007. Available at SSRN: https://ssrn.com/abstract=976117

Abdul G. Abiad

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Daniel Leigh

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Ashoka Mody (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-9617 (Phone)
202-589-9617 (Fax)

HOME PAGE: http://www.amody.com

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