American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
Domestic Institutions and the Bypass Effect of Financial Globalization
American Economic Journal: Economic Policy
vol. 2,
no. 4, November 2010
(pp. 173–204)
Abstract
This paper proposes a simple model to study how domestic institutions affect patterns of international capital flows. Inefficient financial system, and poor corporate governance, may be bypassed by two-way capital flows in which domestic savings leave the country in the form of financial capital outflows but domestic investment takes place via inward FDI. While financial globalization always improves the welfare of a developed country with a good financial system, its effect is ambiguous for a developing country with an inefficient financial sector or poor corporate governance. Interestingly, financial and property rights institutions can have opposite effects on capital flows. (JEL D02, E21, F21, F32, G34)Citation
Ju, Jiandong, and Shang-Jin Wei. 2010. "Domestic Institutions and the Bypass Effect of Financial Globalization." American Economic Journal: Economic Policy, 2 (4): 173–204. DOI: 10.1257/pol.2.4.173Additional Materials
JEL Classification
- D02 Institutions: Design, Formation, and Operations
- E21 Macroeconomics: Consumption; Saving; Wealth
- F21 International Investment; Long-term Capital Movements
- F32 Current Account Adjustment; Short-term Capital Movements
- G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
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