TY  - JOUR
AU  - Frankel,Jeffrey A.
TI  - International Capital Flows and Domestic Economic Policies
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2210
PY  - 1988
Y2  - September 1988
UR  - http://www.nber.org/papers/w2210
L1  - http://www.nber.org/papers/w2210.pdf
N1  - Author contact info:
Jeffrey A. Frankel
Kennedy School of Government
Harvard University
79 JFK Street
Cambridge, MA 02138
Tel: 617/496-3834
Fax: 617/496-5747
E-Mail: jeffrey_frankel@harvard.edu
M1  - published as Jeffrey A. Frankel, Saburo Okita, Peter G. Peterson, James R. Schlesinger. "International Capital Flows and Domestic Economic Policies," in Martin Feldstein, editor, "The United States in the World Economy" University of Chicago Press (1988)

AB  - This paper, written for the NBER Conference on the Changing Role of the United States in the World Economy, covers the capital account in the U.S. balance of payments. It first traces the history from 1946 to 1980, a period throughout which Americans were steadily building up a positive net foreign investment position. It subsequently describes the historic swing of the capital account in the 1980s toward massive borrowing from abroad. There are various factors, in addition to expected rates of return, that encourage or discourage international capital flows: transactions costs, government controls, taxes, default and other political risk and exchange risk. But the paper argues that the increase in real interest rates and other expected rates of return in the United States, relative to other countries, in the early 1980s was the major factor that began to attract large net capital inflows. It concludes that a large increase in the U.S. federal budget deficit, which was not offset by increased private saving, was the major factor behind the increase in real interest rates, and therefore behind the switch to borrowing from abroad.
ER  -