International investment barriers in general equilibrium

This paper examines quantitative international investment barriers in a general equilibrium model. The constraints force otherwise similar agents to hold different portfolios of risky assets. We show that this induces lending and borrowing. This in turn instroduces a hedging motive against shifts in the interest rate. The factors affecting agents' portfolio choice, the allocation of capital across countries, as well as the interest rate are charcterized. We conjure that the equilibrium world interest rate will be lower in the constrained situations than with free capital flows.