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Limited Participation, Income Distribution and Capital Account Liberalization

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  • Eva de Francisco

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    (Macroanalysis CBO)

Abstract

This paper examines theoretically, using a two-country real-business-cycle model, the effects of capital-market liberalization when there is limited participation in national financial markets. It is assumed that workers cannot smooth consumption as well as do stockholders, and therefore, liberalization may hurt workers. This dynamic model evaluates some claims---made particularly by the "anti-globalization" movement---that capital movements hurt workers, while benefitting stockholders. Quantitatively, liberalization makes workers better off in the long run, since the new capital allocation and increased insurance foster capital accumulation, raising wages that offset the output fluctuations due to capital flows. However, transitional effects may overturn these long-run benefits

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File URL: http://repec.org/sce2005/up.15365.1107790488.pdf
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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2005 with number 454.

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Date of creation: 11 Nov 2005
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Handle: RePEc:sce:scecf5:454

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Keywords: Capital Account Liberalization; Globalization and Limited Participation;

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