Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171484
Authors: 
Steger, Thomas M.
Bretschger, Lucas
Year of Publication: 
2005
Series/Report no.: 
Economics Working Paper Series 05/40
Abstract: 
We set up a dynamic stochastic model of a stylized economy comprising a final output sector (with traditional and modern firms) and an intermediate goods sector. It is shown that market integration reduces the volatility of the rate of return of capital invested in modern firms. The induced portfolio decision of households then leads to reallocation of capital from traditional to modern firms. Despite the presence of a reverse precautionary saving channel, the growth rate unambiguously increases due to the reallocation of capital. Empirical estimates for OECD countries confirm the theoretical results
Subjects: 
globalization
trade in intermediate goods
portfolio decisions
economic growth
JEL: 
F1
O4
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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