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Opposition to capital market opening

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  • Philipp Engler
  • Alexander Wulff

Abstract

We 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 for an average non-OECD country that capital owners suffer a 42% reduction in permanent consumption because capital inflows reduce their return to capital while workers gain 8% of permanent consumption because capital inflows increase wages. These huge gross impacts contrast with the small positive net effect found in a neoclassical representative agent model by Gourinchas and Jeanne (2006). Our findings provide an estimate of the amount of redistribution needed to overcome capitalists' opposition to capital inflows.

Suggested Citation

  • Philipp Engler & Alexander Wulff, 2014. "Opposition to capital market opening," Applied Economics Letters, Taylor & Francis Journals, vol. 21(6), pages 425-428, April.
  • Handle: RePEc:taf:apeclt:v:21:y:2014:i:6:p:425-428 DOI: 10.1080/13504851.2013.868579
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    References listed on IDEAS

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    1. Ben Gardiner & Ron Martin & Tyler Peter, 2004. "Competitiveness, Productivity and Economic Growth across the European Regions," ERSA conference papers ersa04p333, European Regional Science Association.
    2. Aizenman, Joshua, 2005. "Opposition to FDI and financial shocks," Journal of Development Economics, Elsevier, pages 467-476.
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    More about this item

    JEL classification:

    • 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, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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