Why Does Capital Flow to Rich States?
Journal article: The magnitude and the direction of net international capital flows do not fit neoclassical models. The fifty U.S. states comprise an integrated capital market with very low barriers to capital flows, which makes them an ideal testing ground for neoclassical models. We develop a simple frictionless open economy model with perfectly diversified ownership of capital and find that capital flows among the states are consistent with the model. Therefore, the small size and “wrong” direction of net international capital flows are likely due to frictions associated with national borders, not to inherent flaws in the neoclassical model.
Author(s)
Ariell Reshef, Bent, E. Sorensen, Oved Yosha, Kalemli-Ozcan Sebnem
Journal
- Review of Economics and Statistics
Date of publication
- 2010
Keywords
- Capital ows
- Ownership
- Historical income
- Net factor income
Pages
- 769–783
URL of the HAL notice
Version
- 1
Volume
- 92