American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Industrial Structure and Capital Flows
American Economic Review
(pp. 2111–46)
Abstract
This paper provides a new theory of international capital flows. In a framework that integrates factor-proportions-based trade and financial capital flows, a novel force emerges: capital tends to flow toward countries that become more specialized in capital-intensive industries. This "composition" effect competes with the standard force that channels capital toward the location where it is scarcer. If the composition effect dominates, capital flows away from the country hit by a positive labor force/productivity shock—a flow "reversal." Extended to a quantitative framework, the model generates sizable current account imbalances between developing and developed countries broadly consistent with the data. (JEL F14, F21, F32, F41, L16, O19)Citation
Jin, Keyu. 2012. "Industrial Structure and Capital Flows." American Economic Review 102 (5): 2111–46. DOI: 10.1257/aer.102.5.2111Additional Materials
JEL Classification
- F14 Country and Industry Studies of Trade
- F21 International Investment; Long-term Capital Movements
- F32 Current Account Adjustment; Short-term Capital Movements
- F41 Open Economy Macroeconomics
- L16 Industrial Organization and Macroeconomics: Industrial Structure and Structural Change; Industrial Price Indices
- O19 International Linkages to Development; Role of International Organizations