The magnitude and the direction of net international capital flows does not fit neo-classical models. The 50 U.S. states comprise an integrated capital market with very
low barriers to capital flows, which makes them an ideal testing ground for neoclassical
models. We develop a simple frictionless open economy model with perfectly diversified
ownership of capital and find that capital flows between the U.S. states are consistent
with the model. Therefore, the small size and "wrong" direction of net international
capital flows are likely due to frictions associated with national borders and not due
to inherent flaws in the neoclassical model.
You may purchase this paper on-line in .pdf format
from SSRN.com ($5) for electronic delivery.
This paper was revised on February 12, 2009
Machine-readable bibliographic record -
MARC,
RIS,
BibTeX