The Elusive Gains from International Financial Integration

Gourinchas, Pierre-Olivier; Jeanne, Olivier

doi:10.3386/w9684

Cited by 199 publications

(252 citation statements)

References 39 publications

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“…4 Third, and most importantly, it is reasonable to expect that financial openness raises factor productivity, as would be reflected in DA. Given that the closing of the development gap requires significant improvements in factor productivity (see Gourinchas & Jeanne, 2006), it is important to test the link between factor productivity and liberalization directly. The remaining columns in Table 1 confirm that the effects of capital account openness and equity market liberalization on factor productivity growth are indeed both large and statistically significant.…”

Section: Decomposing the Growth Effect Of Financial Liberalizationmentioning

confidence: 99%

Financial Openness and Productivity

2011

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Summary. -Financial openness is often associated with higher rates of economic growth. We show that the impact of openness on factor productivity growth is more important than the effect on capital growth. This explains why the growth effects of liberalization appear to be largely permanent, not temporary. We attribute these permanent liberalization effects to the role financial openness plays in stock market and banking sector development, and to changes in the quality of institutions. We find some indirect evidence of higher investment efficiency post-liberalization. We also document threshold effects: countries that are more financially developed or have higher quality of institutions experience larger productivity growth responses. Finally, we show that the growth boost from openness outweighs the detrimental loss in growth from global or regional banking crises.

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Section: Decomposing the Growth Effect Of Financial Liberalizationmentioning

confidence: 99%

Financial Openness and Productivity

2011

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“…In the corporate sector, we set θ = 0.40, which implies a capital income share of 40%, which is also consistent to Gollin (2002). We assume that the capital stock depreciates at a rate of 6% per year, which is a number used in the growth literature (e.g., Gourinchas and Jeanne, 2006). The coefficient of relative risk aversion σ is set at 2.0, which is consistent with micro evidence in Mehra and Prescott (1985).…”

Section: Calibrationmentioning

confidence: 82%

The effects of credit subsidies on development

2014

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This paper studies the effects of interest rate credit subsidies on economic development in a general equilibrium model with heterogeneous agents, occupational choice and financial frictions. There are two financial frictions: a cost to intermediate loans and a limited liability problem which maps into the degree of enforcement of credit contracts in the economy. Occupational choice and firm size are determined endogenously by an agent's type (ability and net wealth) and the credit market frictions. We then add a credit program that subsidizes the interest rate on loans. There is a fixed cost (which might be null) to apply for such loans in the form of bureaucracy and regulations. We show that for the United States, an interest rate credit subsidy does not have a significant effect on output per capita, but it can have important negative effects on wages and government finances. For Brazil, a developing country in which financial repression is high and the government subsidies heavily loans, our counter-factual exercises show that if all interest subsidies were cut, no significant quantitative effect would occur on output per capita, wages, inequality or government finances. However, when the interest rate subsidy is fixed at the level observed in Brazil, but access to the credit program is increased, then output and wages might both increase, as long as the interest rate subsidy does not not affect directly the spread on non-subsidized loans.

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“…The welfare cost calculated in this paper is also larger than ballpark figures associated with other policy distortions found in the literature. For instance, it is twice as large as the welfare gain from eliminating all taxes on capital income in the U.S. (Lucas, 1990), at least double the available estimates of the welfare cost of inflation (Lucas, 2000) and roughly two times larger than the welfare gain from complete financial integration by a typical non-OECD country (Gourinchas and Jeanne, 2006). I also find that the welfare cost of both the credit and reserve requirements amount to 3 of current consumption, a large figure by any measure.…”

Section: Transition Dynamics and Welfare Analysismentioning

confidence: 86%

Macroeconomics of bank interest spreads: evidence from Brazil

Souza-Sobrinho

2009

Ann Finance

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Bank interest spreads, defined as the difference between lending and deposit rates, average about 30 percentage points in Brazil. This figure is ten times larger than the average in industrial countries and three times larger than the Latin American average. This paper analyzes the causes and macroeconomic consequences of these extraordinarily high spreads. Regarding the causes, I argue that the high spreads can largely be accounted for by a credit program that requires banks to allocate a significant portion of their loans to selected high-risk, high-cost borrowers at below-market interest rates. Banks offset their losses in the selected market by charging a disproportionately higher spread in the nonselected market. I construct a general equilibrium model tailored to evaluate the positive and normative consequences of this policy on the Brazilian economy. I find that the pure cross-subsidy between bank borrowers accounts for about a half of the spread levels. I also find that eliminating this policy distortion would raise GDP by 8 percent and almost double the bank credit in the long-run.JEL Codes: E44, G21, O16.

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The Elusive Gains from International Financial Integration

Cited by 199 publications

References 39 publications

Financial Openness and Productivity

Financial Openness and Productivity

The effects of credit subsidies on development

Macroeconomics of bank interest spreads: evidence from Brazil

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