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Welfare Effects of Capital-Market Integration in the Presence of an International Duopoly

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  • Panagiotis I. Karavitis
  • Michael S. Michael

Abstract

We build a two-country model with an international duopoly and capital-market integration. We examine how the convergence of the cost of capital, due to its mobility, affects the welfare of each country and their joint welfare. We find that international capital mobility, which equalizes the return to capital between the two countries, reduces their joint welfare. The welfare of the host country improves for sufficiently large market size and high level of capital-market integration, while the welfare of the source country improves only in a very restrictive case with a very small market size and small differences in their initial marginal cost of capital.

Suggested Citation

  • Panagiotis I. Karavitis & Michael S. Michael, 2018. "Welfare Effects of Capital-Market Integration in the Presence of an International Duopoly," CESifo Working Paper Series 7340, CESifo.
    • Handle: RePEc:ces:ceswps:_7340
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    References listed on IDEAS

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    More about this item

    Keywords

    capital-market integration; imperfect competition; international duopoly;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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