Opposition to capital market opening
AbstractWe employ a neoclassical growth model to assess the impact of financial liberalization in a developing country on capital owners` and workers` consumption and welfare. We find in a baseline calibration for an average non-OECD country that capitalists suffer a 42 percent reduction in permanent consumption because capital inflows reduce their return to capital while workers gain 8 percent of permanent consumption because capital inflows increase wages. These huge gross impacts contrast with the small positive net effect found in a neoclassical represent agent model by Gourinchas and Jeanne (2006). We further show that the result for capitalists is insensitive to enhanced productivity catch-up processes induced by capital inflows. Our findings can help explain why poorer countries tend to be less financially open as capitalists` losses are largest for countries with the lowest capital stocks, inducing strong opposition to capital market opening. --
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Bibliographic InfoPaper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2011/17.
Date of creation: 2011
Date of revision:
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Capital flows; international financial integration; growth; neoclassical model; heterogenous agents;
Other versions of this item:
- F2 - International Economics - - International Factor Movements and International Business
- F3 - International Economics - - International Finance
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
- E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-09 (All new papers)
- NEP-IFN-2011-10-09 (International Finance)
- NEP-OPM-2011-10-09 (Open Economy Macroeconomics)
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