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Capital Mobility and Reform

Author

Listed:
  • Olivier Jeanne

    (John Hopkins University, Peterson Institute)

  • Pierre-Olivier Gourinchas

    (UC Berkeley, NBER and CEPR)

Abstract

Financial globalization is commonly viewed as a powerful force in constraining or disciplining domestic policies. This paper presents a model that captures various ways in which international capital mobility affects domestic policy incentives. Capital mobility supports reform in two ways: 1) capital inflows enhance the benefits of good policies; 2) liberalizing capital outflows may lock in political support for reforms. On the downside, capital mobility makes possible self-fulfilling capital flight that destroys the domestic investor basis and the political support for reform. More generally, individual investment decisions do not internalize their impact on policy incentives, opening some scope for second-best public intervention.

Suggested Citation

  • Olivier Jeanne & Pierre-Olivier Gourinchas, 2009. "Capital Mobility and Reform," 2009 Meeting Papers 107, Society for Economic Dynamics.
    • Handle: RePEc:red:sed009:107
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    Cited by:

    1. Philip R. Lane IIIS, Trinity College Dublin and CEPR, 2009. "Innovation and Financial Globalisation," The Institute for International Integration Studies Discussion Paper Series iiisdp299, IIIS.
    2. Fratzscher, Marcel & Imbs, Jean, 2009. "Risk sharing, finance, and institutions in international portfolios," Journal of Financial Economics, Elsevier, vol. 94(3), pages 428-447, December.
    3. Papaioannou, Elias, 2009. "What drives international financial flows? Politics, institutions and other determinants," Journal of Development Economics, Elsevier, vol. 88(2), pages 269-281, March.
    4. Oualid Lajili and Philippe Gilles, 2018. "Financial Liberalization, Political Openness and Growth in Developing Countries: Relationship and Transmission Channels," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 43(1), pages 1-27, March.

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