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

  • Meir Kohn
  • Nancy Peregrim Marion

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 which 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.

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File URL: http://www.nber.org/papers/w2487.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2487.

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Date of creation: Jan 1988
Date of revision:
Publication status: published as Canadian Journal of Economics, November 1992
Handle: RePEc:nbr:nberwo:2487
Note: ITI IFM
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  2. Kareken, John & Wallace, Neil, 1977. "Portfolio autarky: A welfare analysis," Journal of International Economics, Elsevier, vol. 7(1), pages 19-43, February.
  3. Rudiger Dornbusch, 1981. "Intergenerational and International Trade," NBER Working Papers 0792, National Bureau of Economic Research, Inc.
  4. 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 276-91, March-Apr.
  5. 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.
  6. Krugman, Paul R, 1987. "Is Free Trade Passe?," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 131-44, Fall.
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