We develop a tractable two-country overlapping-generations model and show that cross-country differences in financial development can explain three recent empirical patterns of international capital flows: Financial capital flows from relatively poor to relatively rich countries while foreign...

We develop a model of a small open economy with credit market frictions to analyze the consequences of capital account liberalization. We show that financial opening facilitates the in ows of cheap foreign funds and improves production efficiency. Reforms increasing labor market exibility can...

We develop a general equilibrium model with financial frictions in which internal capital (equity capital) and external capital (bank loans) have dierent rates of return. Financial development raises the rate of return on external capital but has a non-monotonic effect on the rate of return on...

We develop a tractable two-country overlapping-generations model and show that cross-country differences in financial development can explain three recent empirical patterns of international capital fl ows: Financial capital fl ows from relatively poor to relatively rich countries while foreign...

We develop a two-country overlapping-generations model with domestic financial frictions and show that cross-country differences in financial development explain three recent patterns of international capital flows. In our model, domestic financial frictions distort the interest rates and...

We develop a tractable multi-country overlapping-generations model and show that cross-country differences in financial development explain three recent empirical patterns of international capital flows. Domestic financial frictions in our model distort interest rates and aggregate output in the...