The neoclassical growth model predicts that emerging countries with higher TFP growth should receive larger capital inflows. Gourinchas and Jeanne (2007) document that, in fact, countries that exhibited higher productivity catch-up received less capital inflows, even though they invested more in...

The paper shows that in a general equilibrium model with two countries, characterized by different levels of financial development, and two technologies, one more productive and more financially demanding than the other, the following stylized facts can be replicated: 1) the persistent US...