Uniform Standards, Information Quality, and Capital Flows

Abstract

This paper examines the impact of uniform standards from economies' perspective in the presence of capital crunches. We show that converting to uniform standards has a positive marginal productivity effect to each economy by facilitating capital flows across economies and improving investment efficiency. However, converting to uniform standards also has an information quality effect that may bring a positive or a negative impact on an economy's expected output, depending on the severity of capital crunch and the information quality of the economies. In addition, there is a capital endowment effect, which positively affects an economy with a low capital endowment, but negatively affects an economy endowed with plentiful capital. Our analysis indicates that these effects jointly determine the overall impact of converting to uniform standards on an economy.