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International Finance and Income Convergence: Europe is Different

Author/Editor: Abiad, Abdul | Leigh, Daniel | Mody, Ashoka
Authorized for Distribution: March 1, 2007
Electronic Access: Free Full Text (PDF file size is 556KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: Recent studies conclude that the ongoing global financial integration may have had little or no value in advancing economic growth, especially in poor countries. Capital is often found to flow "uphill" from poor to rich countries. And, when it does flow into the less developed economies, it is negatively correlated with growth, calling into question the desirability of foreign capital. In this paper we report that Europe-including the new member states of the European Union-provides a counterexample to these global anomalies. With increasing financial integration, capital in Europe has traveled "downhill" from rich to poor countries, and has done so with gathering strength. These inflows have been associated with significant acceleration of income convergence.
 
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Series: Working Paper No. 07/64
Subject(s): Current account deficits | Europe | Globalization | Capital inflows | Economic growth | Income distribution
Author's keyword(s): Current account deficits | financial integration | growth | convergence
 
English  
    Published:   March 1, 2007        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA2007064   Pages:   36
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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