TY  - JOUR
AU  - Kalemli-Ozcan,Sebnem
AU  - Reshef,Ariell
AU  - Sorensen,Bent
AU  - Yosha,Oved
TI  - Why Does Capital Flow to Rich States?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11301
PY  - 2005
Y2  - May 2005
UR  - http://www.nber.org/papers/w11301
L1  - http://www.nber.org/papers/w11301.pdf
N1  - Author contact info:
Sebnem Kalemli-Ozcan
Koc University
CASE 101
34450 Highway Rumelifeneri
Sariyer Istanbul
Turkey
E-Mail: sebnem.kalemli-ozcan@mail.uh.edu

Ariell Reshef
University of Virginia
Department of Economics
P.O. Box 400182
Charlottesville, VA 22904-4182
Tel: 434-243-4977
Fax: 434-982-2904 
E-Mail: ariellr@virginia.edu

Bent Sorensen
Department of Economics
University of Houston
204 McElhinney Hall
Houston, TX 77204
Tel: 713-743-3841
Fax: 713-743-3798
E-Mail: bent.sorensen@mail.uh.edu

Oved Yosha
E-Mail: yosha@post.tau.ac.il
AB  - 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.
ER  -