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Capital Controls: a Political Economy Approach

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  • Laura Alfaro

Abstract

The paper examines the economic consequences of political conflicts that arise when countries implement capital controls. In an overlapping-generations model, agents vote on whether to open or close an economy to capital flows. The young (workers) receive income only from wages while the old (capitalists) receive income only from savings. The authors characterize the set of stationary equilibria for an infinite-horizon game. Assuming dynamic efficiency, when the median representative is a worker (capitalist), capital-importing countries will open (close) while capital-exporting countries will close (open). These predicted patterns are consistent with data on liberalization policies over time and across various countries. Copyright Blackwell Publishing Ltd 2004.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 12 (2004)
Issue (Month): 4 (09)
Pages: 571-590

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Handle: RePEc:bla:reviec:v:12:y:2004:i:4:p:571-590

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Cited by:
  1. Lai, Ching-chong & Fang, Chung-rou & Chang, Juin-jen, 2008. "Volatility trade-offs in exchange rate target zones," International Review of Economics & Finance, Elsevier, Elsevier, vol. 17(3), pages 366-379.
  2. Axel Dreher & Lars-H.R. Siemers, 2003. "The Intriguing Nexus Between Corruption and Capital Account Restrictions," Development and Comp Systems 0306004, EconWPA, revised 07 Apr 2004.
  3. Kevin P. Gallagher, 2010. "Policy Space to Prevent and Mitigate Financial Crises in Trade and Investment Agreements," G-24 Discussion Papers, United Nations Conference on Trade and Development 58, United Nations Conference on Trade and Development.
  4. Carro Fernandez, Martha, 2007. "Welcoming Foreign Direct Investment? A Political Economy Approach to FDI Policies in Argentina and Brazil," MPRA Paper 47252, University Library of Munich, Germany.

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