IDEAS home Printed from https://ideas.repec.org/p/ags/widerw/295580.html
   My bibliography  Save this paper

Liberalization of Capital Movements and Trade

Author

Listed:
  • Haaparanta, Pertti
  • Kahkonen, Juha

Abstract

A two-period, two-sector optimizing model is used to study the effects of liberalization of trade and capital movements on the real exchange rate, unemployment, and welfare. The mechanism creating unemployment is assumed to be real wage rigidity caused by wage indexation. Due to this distortion, neither free trade nor free capital mobility is in general optimal. It is shown that in the short run liberalization leads to real appreciation while in the long run the picture is not as clear especially regarding trade liberalization. If real appreciation is associated with an increase in unemployment it is optimal to protect the open sector and restrict foreign borrowing. The optimality of these policies is guided by their effects on employment, even though in general there is no necessary connection between welfare and employment. If the initial situation is very distorted liberalization may increase welfare despite the fact that unemployment increases.

Suggested Citation

  • Haaparanta, Pertti & Kahkonen, Juha, "undated". "Liberalization of Capital Movements and Trade," WIDER Working Papers 295580, United Nations University, World Institute for Development Economic Research (UNU-WIDER).
    • Handle: RePEc:ags:widerw:295580
    DOI: 10.22004/ag.econ.295580
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/295580/files/WP5.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.295580?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Jeremy Greenwood & Kent P. Kimbrough, 1985. "Capital Controls and Fiscal Policy in the World Economy," Canadian Journal of Economics, Canadian Economics Association, vol. 18(4), pages 743-765, November.
    2. Buffie, Edward F., 1984. "The macroeconomics of trade liberalization," Journal of International Economics, Elsevier, vol. 17(1-2), pages 121-137, August.
    3. Buffie, Edward F, 1985. "Price-Output Dynamics, Capital Inflows and Real Appreciation," Oxford Economic Papers, Oxford University Press, vol. 37(4), pages 529-551, December.
    4. J. Peter Neary, 1985. "International Factor Mobility, Minimum Wage Rates, and Factor-Price Equalization: A Synthesis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(3), pages 551-570.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pertti Haaparanta & Juha Kähkönen, 1986. "Liberalization of Capital Movements and Trade: Real Appreciation, Employment and Welfare," WIDER Working Paper Series wp-1986-005, World Institute for Development Economic Research (UNU-WIDER).
    2. Svensson, Lars E.O., 1984. "Factor trade and goods trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 365-378, May.
    3. Schweinberger, Albert G., 2001. "Capital, heterogeneous labour, global goods markets and unemployment," Discussion Papers, Series I 309, University of Konstanz, Department of Economics.
    4. Gabriel J Felbermayr & Wilhelm Kohler, 2014. "Immigration and Native Welfare," World Scientific Book Chapters, in: European Economic Integration, WTO Membership, Immigration and Offshoring, chapter 10, pages 335-372, World Scientific Publishing Co. Pte. Ltd..
    5. Jacob Frenkel & Assaf Razin & Efraim Sadka, 1991. "International Taxation in an Integrated World," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061430, December.
    6. Connely, Michael & Devereux, John & Cortes, Mariluz, 1995. "The transhipment problem: Smuggling and welfare in Paraguay," World Development, Elsevier, vol. 23(6), pages 975-985, June.
    7. Obstfeld, Maurice, 1989. "Fiscal deficits and relative prices in a growing world economy," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 461-484, May.
    8. Davies, Rob & Rattso, Jorn & Torvik, Ragnar, 1998. "Short-Run Consequences of Trade Liberalization: A Computable General Equilibrium Model of Zimbabwe," Journal of Policy Modeling, Elsevier, vol. 20(3), pages 305-333, June.
    9. Pierdzioch, Christian, 2004. "Capital mobility and the effectiveness of fiscal policy in open economies," Journal of Macroeconomics, Elsevier, vol. 26(3), pages 465-479, September.
    10. Calderon Cesar Augusto & Chong Alberto & Loayza Norman V., 2002. "Determinants of Current Account Deficits in Developing Countries," The B.E. Journal of Macroeconomics, De Gruyter, vol. 2(1), pages 1-33, March.
    11. J. Peter Neary, 2006. "Measuring Competitiveness," The Economic and Social Review, Economic and Social Studies, vol. 37(2), pages 197-213.
    12. Bai, Xue & Chatterjee, Arpita & Krishna, Kala & Ma, Hong, 2021. "Trade and minimum wages in general equilibrium: Theory and evidence," Journal of International Economics, Elsevier, vol. 133(C).
    13. Mamit Deme & David Franck & Nadeem Naqvi, 2005. "A General Equilibrium Skill Acquisitions Model Of Development For Lesotho," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 30(1), pages 15-29, June.
    14. Ethier, Wilfred J. & Svensson, Lars E. O., 1986. "The theoremes of international trade with factor mobility," Journal of International Economics, Elsevier, vol. 20(1-2), pages 21-42, February.
    15. Gan, Li & Hernandez, Manuel A. & Ma, Shuang, 2016. "The higher costs of doing business in China: Minimum wages and firms' export behavior," Journal of International Economics, Elsevier, vol. 100(C), pages 81-94.
    16. Frenkel, Jacob A & Razin, Assaf, 1987. "Fiscal Policies and the World Economy; An Intertemporal Approach (Cambridge, Mass.: MIT Press, 1987)," MPRA Paper 20438, University Library of Munich, Germany.
    17. Sebastian Edwards, 1988. "Temporary Terms of Trade Disturbances, The Real Exchange Rate and the Current Account," NBER Working Papers 2629, National Bureau of Economic Research, Inc.
    18. Fabio Antoniou & Panos Hatzipanayotou & Nikos Tsakiris, 2024. "Regulatory Stringency and Emission Leakage Mitigation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(6), pages 1407-1424, June.
    19. Ronald Fischer, 1999. "Income distribution and Trade Liberalization," Documentos de Trabajo 67, Centro de Economía Aplicada, Universidad de Chile.
    20. Buiter, Willem H., 1986. "Macroeconomic Responses by Developing Countries to Changes in External Economic Conditions," CEPR Discussion Papers 93, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    International Development;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:widerw:295580. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/widerfi.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.