Productivity growth and international capital flows in an integrated world

Ly-Dai H. Productivity growth and international capital flows in an integrated world. Bielefeld: Universität Bielefeld; 2017.The Thesis focuses on the pattern dependence of international capital flows on the productivity growth across developing and advanced economies by both the theoretical models and empirical evidences. Chapter 2 studies the global imbalances within the Euro area, chapter 3 presents the non-linear pattern of capital flows and chapter 4 explains the capital flows and capital accumulation in the emerging economies

International Capital Flows in Club of Convergence

We explain U-shape pattern of international capital inflows by one multi-country OLG economy and one cross-section data sample. The theory proves that capital inflows are decreasing on distance to frontier, which is measured by ratio of domestic productivity level over United States’ level. The evidences not only confirm the theory but also reveal that growth is decreasing on distance to frontier for club of convergence but increasing for club of unconvergence. Therefore, Neo-Classical growth model’s implication, that capital inflows are positively correlated to growth, applies for club of convergence. However, Allocation puzzle, that capital inflows are negatively correlated to growth, works for club of unconvergence. The turning point of U-shape pattern is the productivity growth rate at world technology frontier

Saving Wedge, Productivity Growth and International Capital Flows

On one small open OLG economy, the productivity growth determines both the in- vestment through marginal product of capital and the savings through endogenous financial friction modeled as the capital income taxation. Therefore, the over-time fluctuation of international capital flows is shaped by the changes of productivity growth. The empirical evidences on one panel sample of 180 economies over 1980- 2013 confirm the endogeneity of financial friction as one mechanism underlying the impact of productivity growth on net total capital inflows. Furthermore, the combination of theory and evidences reveals that, for capital flows, the implication of Neo-Classical growth model works on the investment side, while the allocation puzzle applies on the saving side

Non-Linear Pattern of International Capital Flows

We establish one non-linear pattern of international capital flows by building up one two-country OLG economy. With symmetric growth and asymmetric interest rate wedges across countries, net total capital inflows are either decreasing or increasing on productivity growth rate. However, with asymmetric growth and asymmetric wedges, they follow one U-shaped curve by first decreasing and then increasing on growth. The turning point of the curve is built on world average growth rate and wedges. Our proposed model can provide an explanation for inconsistencies between theories (i.e, Lucas paradox, up-hill capital flows, and allocation puzzle) about the pattern of international capital flows

Global Imbalances with Safe Assets in Eurozone

In one open two-country economy, a higher domestic productivity level raises both mean and variance of wealth dynamic, and can lead to a greater accumu- lation of safe assets. The empirical evidences on the 19 countries of Eurozone confirm that the safe assets exchange supports the international risk-sharing across countries. Moreover, in comparison with the risky investments (FDI and Portfolio Equities), the safe assets (Bonds) are the dominant driver of global imbalances within Eurozone

International Capital Flows in Club of Convergence

We explain U-shape pattern of international capital inflows by one multi-country OLG economy and one cross-section data sample. The theory proves that capital inflows are decreasing on distance to frontier, which is measured by ratio of domestic productivity level over United States’ level. The evidences not only confirm the theory but also reveal that growth is decreasing on distance to frontier for club of convergence but increasing for club of unconvergence. Therefore, Neo-Classical growth model’s implication, that capital inflows are positively correlated to growth, applies for club of convergence. However, Allocation puzzle, that capital inflows are negatively correlated to growth, works for club of unconvergence. The turning point of U-shape pattern is the productivity growth rate at world technology frontier

Global Imbalances with Safe Assets in Eurozone

In one open two-country economy, a higher domestic productivity level raises both mean and variance of wealth dynamic, and can lead to a greater accumu- lation of safe assets. The empirical evidences on the 19 countries of Eurozone confirm that the safe assets exchange supports the international risk-sharing across countries. Moreover, in comparison with the risky investments (FDI and Portfolio Equities), the safe assets (Bonds) are the dominant driver of global imbalances within Eurozone

Non-Linear Pattern of International Capital Flows

We establish one non-linear pattern of international capital flows by building up one two-country OLG economy. With symmetric growth and asymmetric interest rate wedges across countries, net total capital inflows are either decreasing or increasing on productivity growth rate. However, with asymmetric growth and asymmetric wedges, they follow one U-shaped curve by first decreasing and then increasing on growth. The turning point of the curve is built on world average growth rate and wedges. Our proposed model can provide an explanation for inconsistencies between theories (i.e, Lucas paradox, up-hill capital flows, and allocation puzzle) about the pattern of international capital flows

Saving Wedge, Productivity Growth and International Capital Flows

On one small open OLG economy, the productivity growth determines both the in- vestment through marginal product of capital and the savings through endogenous financial friction modeled as the capital income taxation. Therefore, the over-time fluctuation of international capital flows is shaped by the changes of productivity growth. The empirical evidences on one panel sample of 180 economies over 1980- 2013 confirm the endogeneity of financial friction as one mechanism underlying the impact of productivity growth on net total capital inflows. Furthermore, the combination of theory and evidences reveals that, for capital flows, the implication of Neo-Classical growth model works on the investment side, while the allocation puzzle applies on the saving side

Time-Varying Exchange Rate Risk Premium

We characterize the exchange rate risk premium on the context of a small open economy with controlled floating exchange rate regime. The data set includes 100 observations on case of Vietnam over 01/2011-04/2019. The risk premium is varying over time. And it is determined by output growth rate, inflation rate, foreign capital inflows and liquidity supply. As one application, the existence of time varying risk premium reduces the effectiveness of foreign exchange market intervention by forward contract