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Trade Development and Political Economy presents: Taiji Furusawa

341 Eggers Hall

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Taiji Furusawa Professor of Economics, Hitotsubashi University, Japan Globalization Under Financial Imperfections (Authors: Taiji Furusawa and Noriyuki Yanagawa) Furusawa and Yanagawa investigate the effects of international trade in goods and capital movement on the productivity distribution and industry-wide productivity when countries are heterogeneous in the quality of their financial institutions. In autarky, firm heterogeneity in their productivities arises in countries with poor financial institutions, while all firms adopt a high-productivity technology in countries with better financial institutions. Trade in goods will not change the productivity distribution (nor the industry-wide productivity as a result) in any country, although it lowers equilibrium interest rates in countries with poor financial institutions while it raises them in countries with better financial institutions. Allowing international capital movement in addition to the trade, however, makes a large impact on the industry. Capital flight from countries with poor financial institutions occurs, which may lead to global convergence in which all firms in the world adopt the high-productivity technology under a relatively high interest rate. But if the worldwide average of quality of financial institution is low, international capital movement will reduce worldwide production efficiency such that low-productivity firms re-emerge even in northern countries as well as in southern countries. Speaker: Taiji Furusawa is a Professor of Economics at the Hitotsubashi University in Tokyo, Japan. He is visiting Harvard this current academic year. His research interests are in international trade theory and microeconomic theory.

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