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The Order of Liberalization of the Current and Capital Accounts of the Balance of Payments

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  • Sebastian Edwards

    (UCLA)

Abstract

The opening up of an economy to the rest of the world has generally been considered an integral part of economic reform aimed at increasing the role of markets. Until recently, however, very little discussion was devoted to the order in which the capital and current account should be liberalized indeveloping countries.This paper deals with several aspects of the order of liberalization. The different arguments usually given to advocate a particular ordering are critically reviewed. Then a three-good two-factor model is used to analyze the effects of alternative ordering on production and income distribution. A two-period model of a small economy is also used to investigate the welfare effects of opening the capital account in the presence of distortions. While the discussion does not yield a theorem regarding the appropriate order of liberalization, there are strong presumptions that it is more prudent to liberalize the current account first.
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Suggested Citation

  • Sebastian Edwards, 1984. "The Order of Liberalization of the Current and Capital Accounts of the Balance of Payments," UCLA Economics Working Papers 328, UCLA Department of Economics.
  • Handle: RePEc:cla:uclawp:328
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    File URL: http://www.econ.ucla.edu/workingpapers/wp328.pdf
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    Cited by:

    1. Buch, Claudia M. & Heinrich, Ralph P., 1997. "Financing the transition: Risks and benefits of integrating into the international capital market," Kiel Working Papers 818, Kiel Institute for the World Economy (IfW).
    2. Yilmaz Akyüz, 1994. "Libéralisation financière : mythes et réalités," Revue Tiers Monde, Programme National Persée, vol. 35(139), pages 521-555.
    3. Carlos Cáceres, 1987. "Garantía Oficial Implícita y Créditos Externos," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 24(72), pages 127-142.
    4. Elsa Assidon, 1996. "L' « approfondissement financier » : épargne et crédit bancaires," Revue Tiers Monde, Programme National Persée, vol. 37(145), pages 153-171.
    5. Geneviève Marchini, 1996. "Ouverture financière, stabilisation et transformation productive au Mexique, 1988-1994," Revue Tiers Monde, Programme National Persée, vol. 37(146), pages 385-405.

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