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Industrial structure and financial capital flows

Jin, Keyu (2009) Industrial structure and financial capital flows. London School of Economics and Political Science, London, UK. (Unpublished)

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Abstract

Commodity trade and financial asset trade are both integral parts of globalization, yet little has been studied on their interplay. In a framework that integrates these two paradigms of trade, a new force driving international capital flows emerges: capital tends to flow towards countries that become more specialized in capital-intensive industries (a composition effect). This force competes with the standard, "convergence force" which channels capital towards the location where it is more scarce, in response shocks such as globalization, country-specic labor force or labor-technology shock shocks. If the composition eect dominates, capital ows away from the country hit by a positive shock, a flow reversal", and asset prices rise globally rather than locally. Two implications arise: rich countries' current account decits may be a consequence of their shifting towards capital-intensive industries; young and fast growing developing countries may help sustain asset prices in an aging industrialized world. Predictions of the current account and specialization patterns are shown to be consistent with the data.

Item Type: Monograph (Working Paper)
Official URL: http://econ.lse.ac.uk/
Additional Information: © 2009 Keyu Jin
Library of Congress subject classification: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics
F - International Economics > F3 - International Finance > F32 - Current Account Adjustment; Short-Term Capital Movements
F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment; Long-Term Capital Movements
Sets: Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 19 Nov 2009 15:40
URL: http://eprints.lse.ac.uk/25827/

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