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Long-run effects of capital market integration using Solow's model

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  • Philippe Darreau

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

  • François Pigalle

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

Abstract

The purpose of this paper is to synthesize the thre e results in the existing literature (and to add a fourth result) in a single unified framework and thus to identify the c onditions under which the capital-exporting and cap ital-importing countries gain from international financial integra tion. We show that the capital-exporting country wi ns if it saves a constant fraction of its profits, and that capital- importing country wins if it saves a constant fract ion of its wages. In Solow's model for the integration of the capital ma rket to be profitable, it is necessary for savings to be proportional to income, which increases through the integration of the capital market: profit of the lender, and wages of the borrower.

Suggested Citation

  • Philippe Darreau & François Pigalle, 2015. "Long-run effects of capital market integration using Solow's model," Post-Print hal-01203591, HAL.
    • Handle: RePEc:hal:journl:hal-01203591
    Note: View the original document on HAL open archive server: https://unilim.hal.science/hal-01203591
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    References listed on IDEAS

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    1. Pierre-Olivier Gourinchas & Olivier Jeanne, 2006. "The Elusive Gains from International Financial Integration," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(3), pages 715-741.
    2. Quibria, M. G., 1986. "A note on foreign investment, the savings function and immiserization of national welfare," Journal of Development Economics, Elsevier, vol. 21(2), pages 361-372, May.
    3. Ruffin, Roy J, 1979. "Growth and the Long-Run Theory of International Capital Movements," American Economic Review, American Economic Association, vol. 69(5), pages 832-842, December.
    4. Philippe Darreau & François Pigalle, 2014. "Long-run effects of capital market integration using OLG model," Economics Bulletin, AccessEcon, vol. 34(3), pages 1835-1845.
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    Cited by:

    1. Yuling Ma & Jiajun Qiao & Dong Han, 2022. "Simulation and Prediction of Evolution of Specialized Villages Agglomeration Based on System Dynamics," Land, MDPI, vol. 11(8), pages 1-18, July.

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