Study reveals how borrowing constraints impact capital flows and economic growth.
The article explores how financial obstacles impact capital flows between countries. By using a model with different types of entrepreneurs, the study looks at how borrowing limits and risks affect capital accumulation and economic outcomes. The researchers find that when entrepreneurs face risks and borrowing constraints, capital tends to move from poorer to wealthier countries. They also discover that higher interest rates can boost domestic capital and output levels. Tighter borrowing limits and more persistent shocks can significantly alter these results.