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Capital-Account Liberalization as a Signal

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  • Bartolini, Leonardo
  • Drazen, Allan

Abstract

The authors present a model in which a government's current capital-control policy signals future policies. Controls on capital outflows evolve in response to news on technology, conditional on government attitudes toward taxation of capital. When there is uncertainty over governmental types, a policy of liberal capital outflows sends a favorable signal that may trigger a capital inflow. This prediction is consistent with the experience of several countries that have liberalized their capital accounts. Copyright 1997 by American Economic Association.

Suggested Citation

  • Bartolini, Leonardo & Drazen, Allan, 1997. "Capital-Account Liberalization as a Signal," American Economic Review, American Economic Association, vol. 87(1), pages 138-154, March.
  • Handle: RePEc:aea:aecrev:v:87:y:1997:i:1:p:138-54
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    References listed on IDEAS

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    1. Fudenberg, Drew & Tirole, Jean, 1991. "Perfect Bayesian equilibrium and sequential equilibrium," Journal of Economic Theory, Elsevier, vol. 53(2), pages 236-260, April.
    2. Alberto Alesina & Vittorio Grilli & Gian Maria Milesi-Ferrett, 1993. "The Political Economy of Capital Controls," NBER Working Papers 4353, National Bureau of Economic Research, Inc.
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    7. Dooley, Michael P & Isard, Peter, 1980. "Capital Controls, Political Risk, and Deviations from Interest-Rate Parity," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 370-384, April.
    8. Bacchetta, Philippe, 1992. "Liberalization of Capital Movements and of the Domestic Financial System," Economica, London School of Economics and Political Science, vol. 59(236), pages 465-474, November.
    9. Alesina, Alberto & Tabellini, Guido, 1989. "External debt, capital flight and political risk," Journal of International Economics, Elsevier, vol. 27(3-4), pages 199-220, November.
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    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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