Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/241108 
Year of Publication: 
2020
Series/Report no.: 
Staff Report No. 915
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
Since the late 1990s, the United States has received large capital flows from developing countries and experienced a productivity growth slowdown. Motivated by these facts, we provide a model connecting international financial integration and global productivity growth. The key feature is that the tradable sector is the engine of growth of the economy. Capital flows from developing countries to the United States boost demand for U.S. non-tradable goods. This induces a reallocation of U.S. economic activity from the tradable sector to the non-tradable one. In turn, lower profits in the tradable sector lead firms to cut back investment in innovation. Since innovation in the United States determines the evolution of the world technological frontier, the result is a drop in global productivity growth. We dub this effect the global financial resource curse. The model thus offers a new perspective on the consequences of financial globalization, and on the appropriate policy interventions to manage it.
Subjects: 
global productivity growth
international financial integration
capital flows
U.S.productivity growth slowdown
low global interest rates
Bretton Woods II
export-led growth
JEL: 
E44
F21
F43
F62
O24
O31
Document Type: 
Working Paper

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