アジア成長研究所 6階 会議室
Allocation puzzle and a new theory of capital flows
This paper builds a theory of capital flows that explains the allocation of more capital in capital-exporting countries than capital-importing countries, called the “allocation puzzle”. We build a model of two countries populated by overlapping generations that are identical except for a country’s financial depth, captured by the strength of borrowing constraints. A country with the stronger borrowing constraint runs capital outflows but the growth in investment in the transition from autarky to globalization when the saving rate of that country increases along with globalization. The positive correlation between saving and investment is reminiscent of the Feldstein-Horioka puzzle. Even with the difference in financial depth, globalization is followed in the long run by capital allocation featured by either divergence or convergence. The dynamics of capital are cyclical in the short run. The persistence in the difference in financial depth and the rise in the saving rates are sufficient to explain the recent globalization featured by global imbalance, convergence, allocation puzzle, and saving gluts. We conduct some counterfactual experiments when there were no Asian crisis, and when the China’s saving rate was not extraordinary. These simulations provide interesting implications on allocation puzzle, the global imbalance and the world interest rate.