Benigno, Gianluca and Fornaro, Luca (2014) The financial resource curse. Scandinavian Journal of Economics, 116 (1). pp. 58-86. ISSN 0347-0520
Full text not available from this repository.Abstract
In this paper, we present a model of the financial resource curse (i.e., episodes of abundant access to foreign capital coupled with weak productivity growth). We study a two-sector (i.e., tradable and non-tradable) small open economy. The tradable sector is the engine of growth, and productivity growth is increasing with the amount of labor employed by firms in the tradable sector. A period of large capital inflows, triggered by a fall in the interest rate, is associated with a consumption boom. While the increase in tradable consumption is financed through foreign borrowing, the increase in non-tradable consumption requires a shift of productive resources toward the non-tradable sector at the expenses of the tradable sector. The result is stagnant productivity growth. We show that capital controls can be welfare-enhancing and can be used as a second-best policy tool to mitigate the misallocation of resources during an episode of financial resource curse.
| Item Type: | Article |
|---|---|
| Official URL: | http://onlinelibrary.wiley.com/journal/10.1111/%28... |
| Additional Information: | © 2013 The editors of The Scandinavian Journal of Economics |
| Divisions: | Economics |
| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
| JEL classification: | F - International Economics > F3 - International Finance > F32 - Current Account Adjustment; Short-Term Capital Movements F - International Economics > F3 - International Finance > F34 - International Lending and Debt Problems F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies |
| Date Deposited: | 22 Jan 2014 14:24 |
| Last Modified: | 25 Sep 2024 22:03 |
| URI: | http://eprints.lse.ac.uk/id/eprint/55400 |
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