Essays On International Capitol Mobility

Unequal quality of fundamental institutions induces different patterns of international capital flows in terms of both direction and magnitude. This dissertation examines, theoretically and empirically, the link between the financial intermediation sector and capital flows by highlighting the role of institutions and the technological level that financial intermediaries have access to. The theoretical section employs a model with endogenous labour input in monitoring loans by the financial intermediary. Numerical exercises reveal that this modification improves the traditional exogenous model by replicating the stylized facts, in particular, the model is able to replicate and explain the non-monotonic relationship between institutional quality and international net bank flows. Furthermore, contrary to the exogenous model, the model with endogenous labour input is able to reproduce a loan interest rate profile which decreases as institutional quality improves. The empirical section uses a panel of 56 rich and middle-income countries and cross-border bank flows and reveals that, firstly, institutional quality matters slightly more for the mid-income countries in explaining the net bank flows, while for high-income countries it is the market fundamentals which are significant explanatory forces. Secondly, while for both income groups the rule of law and voice & accountability indices are significant, for mid-income countries government effectiveness is also of significance.