Long-run effects of capital market integration using Solow's model

The purpose of this paper is to synthesize the three results in the existing literature (and to add a fourth result) in a single unified framework and thus to identify the conditions under which the capital-exporting and capital-importing countries gain from international financial integration. We show that the capital-exporting country wins if it saves a constant fraction of its profits, and that capital-importing country wins if it saves a constant fraction of its wages. In Solow's model for the integration of the capital market to be profitable, it is necessary for savings to be proportional to income, which increases through the integration of the capital market: profit of the lender, and wages of the borrower.