Capital Flight, North-South Lending, and Stages of Economic Development

24 Pages Posted: 3 Jun 2004

See all articles by Masaya Sakuragawa

Masaya Sakuragawa

Nagoya City University - Department of Economics

Koichi Hamada

Yale University - Department of Economics

Abstract

We present a two-country OLG economy in which international capital mobility exists in the presence of moral hazard in financial contracts. The difference in the extent of asymmetric information is a source of capital movement and capital flows from the South to the North. Even though there exists a unique steady state under autarky, multiple locally stable steady states may emerge in a world economy with an integrated capital market. However, the integration may drive the South down to further impoverishment. The South's government therefore should take into account seriously the timing of capital market liberalization as a conduit of economic development.

Suggested Citation

Sakuragawa, Masaya and Hamada, Koichi, Capital Flight, North-South Lending, and Stages of Economic Development. Available at SSRN: https://ssrn.com/abstract=534150

Masaya Sakuragawa (Contact Author)

Nagoya City University - Department of Economics ( email )

Yamanohata 1, Mizuho-cho, Mizuho-ku
Nagoya, 467-8501
Japan

Koichi Hamada

Yale University - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

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