The classical Heckscher-Ohlin-Mundell paradigm states that trade and capital mobility are substitutes, in the sense that trade integration reduces the incentives for capital to flow to capital-scarce countries. In this paper we show that in a world with heterogeneous financial development, the...

We quantify the impact of barriers to international investment, using a novel multi-country dynamic general equilibrium model with heterogeneous investors and imperfect capital mobility. Our model yields a gravity equation for bilateral foreign asset positions. We estimate this gravity equation...

According to the life-cycle theory, countries with high and rising youth ratios or high and rising old-age ratios tend to have low savings relative to investment, which depresses their capital outflows. This paper puts life-cycle theory to the test and studies the impact of demographic change on...

Capital mobility impedes the ability of authorities to pursue independent policy goals. Market participants will drive the informal adoption of the most adaptive currency. The current paper is descriptive, predictive, and prescriptive. A Granger-Sims causality test shows the dependency of...

The continuing process of globalization has resulted in new trends of economic relations among countries. The modern regional integration goes beyond the traditional removal of barriers and includes free movement of factors of production which brings larger benefits than merely those from the...

We show that multinational firms transmit shocks across countries through their internal capital markets. We study a credit supply shock to parent firms in Germany. International affiliates outside Germany supported their parents through internal lending, became financially constrained...

Cross-country regressions suggest little connection from foreign capital inflows to more rapid economic growth for developing countries and emerging markets. This suggests that the lack of domestic savings is not the primary constraint on growth in these economies, as implicitly assumed in the...

This paper documents four trends in Asia: (1) the increase in the magnitude of gross capital inflows and outflows; (2) the larger magnitude of gross capital inflows relative to outflows in some countries; (3) the increase in the volatility of these capital flows; and (4) the steady increase in...

Our friend and colleague Rüdiger Dornbusch passed away before he was able tocomplete his book based on the Munich Lectures in Economics that he gave inNovember 17, 1998, at the Center for Economic Studies of Ludwig-Maximilians-Universität.The lectures contain a fascinating overview of the...

Despite the liberalisation of capital flows among OECD countries, equity home bias remains sizable. We depart from the two familiar explanation of equity home bias: transaction costs that impede international diversification, and terms of trade responses to supply shocks that provide risk...