International Finance and Income Convergence

Recent studies conclude that the ongoing global financial integration may have had little or no value in advancing economic growth, especially in poor countries. Capital is often found to flow "uphill" from poor to rich countries. And, when it does flow into the less developed economies, it is negatively correlated with growth, calling into question the desirability of foreign capital. In this paper we report that Europe-including the new member states of the European Union-provides a counterexample to these global anomalies. With increasing financial integration, capital in Europe has traveled "downhill" from rich to poor countries, and has done so with gathering strength. These inflows have been associated with significant acceleration of income convergence.Current account deficits;Capital inflows;Economic growth;Income distribution;current account, current account deficit, current account balance, current accounts, current account balances, capital account liberalization, capital account, current account surpluses, capital account openness, domestic growth, current account surplus, domestic savings, reserve bank, long term debt, external finance, current account imbalances, current account dynamics, global current account, external liabilities, domestic saving, current account positions, long-term debt