We develop a tractable two-country overlapping-generations model with domestic financial frictions and show that cross-country differences in financial development explain three recent empirical patterns of international capital flows. In our model, domestic financial frictions create two distinct distortions on the interest rates and production efficiency in the less financially developed coun...

We develop a tractable two-country overlapping-generations model and show that cross-country differences in financial development can explain three recent empirical patterns of international capital flows: Financial capital flows from relatively poor to relatively rich countries, while foreign direct investment flows in the opposite direction; net capital flows go from poor to rich countries; d...

We develop a tractable two-country overlapping-generations model and show that cross-country differences in financial development can explain three recent empirical patterns of international capital flows: Financial capital flows from relatively poor to relatively rich countries, while foreign direct investment flows in the opposite direction; net capital flows go from poor to rich countries; d...

We show that (i) different collateral requirements across countries in securitized markets lead to net international capital flows, and (ii) the ability to tranche asset-backed securities in one country leads to offsetting portfolio flows, creating gross financial flows. We use a general equilibrium model with two countries, collateralized borrowing, and securitized markets. Financial systems d...

We develop a two-country overlapping-generations model with domestic financial frictions and show that cross-country differences in financial development explain three recent patterns of international capital flows. In our model, domestic financial frictions distort the interest rates and production efficiency in the less financially developed country. Capital flows not only lead to cross-count...

It has become easier, with the passage of time, to forget what an extraordinary event the Asian financial crisis was. Before the crisis, the countries of east Asia had grown faster, for longer, than any other countries in recorded history. They had transformed their economies and the standard of living of their people in the course of a single generation. In 1960, some of the east Asian countri...

We develop a general equilibrium model with financial frictions in which equity and credit have different rates of return. Financial development raises the loan rate but has a non-monotonic effect on the equity return. We then show in a two-country model that capital account liberalization leads to outflow of financial capital from the country with less developed financial system. However, the ...

We develop a tractable two-country overlapping generations model and show analytically that the cross-country differences in financial development help explain three recent empirical facts characterizing international capital flows: financial capital flows from relatively poor to relatively rich countries while FDI flows in the opposite direction; net capital flows are from poor to rich countri...