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FINANCIAL GLOBALIZATION AND ECONOMIC GROWTH

Published online by Cambridge University Press:  03 July 2012

Delfim Gomes Neto
Delfim Gomes Neto*
Affiliation:
Universidade do Minho and NIPE
*
Address correspondence to: Delfim Gomes Neto, Universidade do Minho, Escola de Economia e Gestão, Campus de Gualtar, 4710-057 Braga, Portugal; e-mail: dneto@eeg.uminho.pt.
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Abstract

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Using a two-sector endogenous growth model, the speed of convergence is determined primarily by the gap in rates of return between physical and human capital. In closed economies, for a typical situation of having relatively less physical capital than in a steady state, the return on physical capital will be significantly high, whereas the return on human capital will be relatively low. This gap in rates of return is quite large when the economy is not at its steady state. In open economies, where human capital is nontradable, the gap in rates of return is small, as is the gap between the international interest rate (which is less than the closed economies return on physical capital) and the return on human capital. Convergence in open economies will be relatively slow, and convergence in closed economies will be relatively fast, and therefore there is little gain from financial liberalization.

Keywords

Capital MobilitySpeed of ConvergenceWelfare GainsOpen versus Closed Economies

Information

Type
Articles
Information
Macroeconomic Dynamics , Volume 18 , Issue 3 , April 2014, pp. 526 - 547
Copyright
Copyright © Cambridge University Press 2012 

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