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The Implications of Knowledge-Based Growth for the Optimality of Open Capital Markets

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  • Meir Kohn
  • Nancy Marion

Abstract

This paper reexamines the view that opening capital markets must have long-run benefits. The analysis shows that the desirability of opening a country's capital markets depends on the nature of the technology assumed. Models of knowledge-based growth predict that changes that alter the economy's level of production will also affect the economy's growth rate and hence the welfare of future generations. Standard neoclassical growth models imply no such effects on growth or welfare. If production does involve an important element of learning by doing, inference from the standard models may be seriously misleading. In particular, opening capital markets does not necessarily improve welfare for the nation or for the world as a whole.

Suggested Citation

  • Meir Kohn & Nancy Marion, 1992. "The Implications of Knowledge-Based Growth for the Optimality of Open Capital Markets," Canadian Journal of Economics, Canadian Economics Association, vol. 25(4), pages 865-883, November.
  • Handle: RePEc:cje:issued:v:25:y:1992:i:4:p:865-83
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Krugman, Paul R, 1987. "Is Free Trade Passe?," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 131-144, Fall.
    3. Joel Fried, 1980. "The Intergenerational Distribution of the Gains from Technical Change and from International Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 13(1), pages 65-81, February.
    4. Dornbusch, Rudiger, 1985. "Intergenerational and international trade," Journal of International Economics, Elsevier, vol. 18(1-2), pages 123-139, February.
    5. Kareken, John & Wallace, Neil, 1977. "Portfolio autarky: A welfare analysis," Journal of International Economics, Elsevier, vol. 7(1), pages 19-43, February.
    6. Starrett, David A, 1972. "On Golden Rules, the "Biological Theory of Interest," and Competitive Inefficiency," Journal of Political Economy, University of Chicago Press, vol. 80(2), pages 276-291, March-Apr.
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    Cited by:

    1. Joshua Aizenman, 2005. "Financial Liberalisations in Latin America in the 1990s: A Reassessment," The World Economy, Wiley Blackwell, vol. 28(7), pages 959-983, July.
    2. Joshua Aizenman, 2004. "Financial Opening: Evidence and Policy Options," NBER Chapters,in: Challenges to Globalization: Analyzing the Economics, pages 473-498 National Bureau of Economic Research, Inc.
    3. Aizenman, Joshua, 2003. "Reforming the global financial system," Center for Global, International and Regional Studies, Working Paper Series qt0cg1r6q8, Center for Global, International and Regional Studies, UC Santa Cruz.
    4. Joshua Aizenman & Yothin Jinjarak & Donghyun Park, 2013. "Capital Flows and Economic Growth in the Era of Financial Integration and Crisis, 1990–2010," Open Economies Review, Springer, vol. 24(3), pages 371-396, July.
    5. Gaumont, D. & Leonard, D., 2010. "Human capital, externalities and growth in an overlapping generations model," Research in Economics, Elsevier, vol. 64(3), pages 186-200, September.
    6. Aizenman, Joshua & Marion, Nancy P, 1993. "Policy Uncertainty, Persistence and Growth," Review of International Economics, Wiley Blackwell, vol. 1(2), pages 145-163, June.
    7. Poganietz, Witold-Roger, 1997. "Vermindern Transferzahlungen den Konflikt zwischen Gewinnern und Verlierern in einer sich transformierenden Volkswirtschaft?," IAMO Discussion Papers 7, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).

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