North-South lending and endogenous domestic capital market inefficiencies

Mark Gertler, Kenneth Rogoff

    Research output: Contribution to journalArticle

    Abstract

    We develop an open-economy model of intertemporal trade under asymmetric information. Capital market imperfections are endogenous and depend on a country's stage of economic development. Relative to the perfect-information benchmark, North-South capital flows are dampened (and possibly reversed) and world interest rates are lower. Whereas riskless rates are equalized across borders, the domestic loan rate is higher in poorer countries. The model can be applied to a number of policy issues including the debt-overhang problem, the indexation of foreign public debts, and the effect of income distribution on growth.

    Original languageEnglish (US)
    Pages (from-to)245-266
    Number of pages22
    JournalJournal of Monetary Economics
    Volume26
    Issue number2
    DOIs
    StatePublished - Oct 1990

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

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