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Capital Account Openness and Bankruptcies

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  • L Angeles

Abstract

This paper presents a model where opening the capital account of an economy causes more bankruptcies to take place in the non tradables sector. Non tradable firms must forecast the future state of the economy when investing since the demand for their goods depends on this. In our model the interest rate is a powerful signal that non tradable firms use when the capital account is closed, but its informational content decreases once the capital account opens up and international (as well as domestic) shocks affect it.

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File URL: http://www.socialsciences.manchester.ac.uk/medialibrary/cgbcr/discussionpapers/dpcgbcr65.pdf
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Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 65.

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Length: 32 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:man:cgbcrp:65

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  1. Arteta, Carlos & Eichengreen, Barry & Wyplosz, Charles, 2001. "When Does Capital Account Liberalization Help More Than it Hurts?," CEPR Discussion Papers 2910, C.E.P.R. Discussion Papers.
  2. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2004. "Financial development and the instability of open economies," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1077-1106, September.
  3. Torsten Persson & Guido Tabellini, 1990. "The Politics of 1992: Fiscal Policy and European Integration," NBER Working Papers 3460, National Bureau of Economic Research, Inc.
  4. Marco Terrones & Eswar Prasad & M. Ayhan Kose, 2003. "Financial Integration and Macroeconomic Volatility," IMF Working Papers 03/50, International Monetary Fund.
  5. Stiglitz, Joseph E., 2000. "Capital Market Liberalization, Economic Growth, and Instability," World Development, Elsevier, vol. 28(6), pages 1075-1086, June.
  6. Williamson, J. & Drabek, Z., 1999. "Whether and When to Liberalize Capital Account and Financial Services," Economic Research and Analysis Division (ERAD) 99-03, World Trade Organization. Economic Research and Analysis Division (ERAD).
  7. Michael Bordo & Barry Eichengreen & Daniela Klingebiel & Maria Soledad Martinez-Peria, 2001. "Is the crisis problem growing more severe?," Economic Policy, CEPR;CES;MSH, vol. 16(32), pages 51-82, 04.
  8. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
  9. Bacchetta, Philippe & Espinosa, Maria Paz, 1995. "Information sharing and tax competition among governments," Journal of International Economics, Elsevier, vol. 39(1-2), pages 103-121, August.
  10. Rivera-Batiz, Francisco L, 2001. "International Financial Liberalization, Corruption, and Economic Growth," Review of International Economics, Wiley Blackwell, vol. 9(4), pages 727-37, November.
  11. Sebastian Edwards, 2001. "Capital Mobility and Economic Performance: Are Emerging Economies Different?," NBER Working Papers 8076, National Bureau of Economic Research, Inc.
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