Abstract

http://ssrn.com/abstract=1942829
 
 

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Opposition to Capital Market Opening


Philipp Engler


Freie Universität Berlin

Alexander Wulff


Free University of Berlin (FUB)

October 21, 2011


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 in a baseline calibration for an average non-OECD country that capitalists suffer a 42 percent reduction in permanent consumption because capital inflows reduce their return to capital while workers gain 8 percent of permanent consumption because capital inflows increase wages. These huge gross impacts contrast with the small positive net effect found in a neoclassical represent agent model by Gourinchas and Jeanne (2006). We further show that the result for capitalists is insensitive to enhanced productivity catch-up processes induced by capital inflows. Our findings can help explain why poorer countries tend to be less financially open as capitalists' losses are largest for countries with the lowest capital stocks, inducing strong opposition to capital market opening.

Number of Pages in PDF File: 30

Keywords: Capital flows, international …nancial integration, growth, neoclassical model, heterogenous agents

JEL Classification: F2, F3, F43, E13, E25, O11

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Date posted: October 12, 2011 ; Last revised: November 7, 2011

Suggested Citation

Engler, Philipp and Wulff, Alexander, Opposition to Capital Market Opening (October 21, 2011). Available at SSRN: http://ssrn.com/abstract=1942829 or http://dx.doi.org/10.2139/ssrn.1942829

Contact Information

Philipp Engler (Contact Author)
Freie Universität Berlin ( email )
Boltzmannstr. 20
D-14195 Berlin
Germany
Alexander Wulff
Free University of Berlin (FUB) ( email )
Boltzmannstr
Berlin, Berlin 14195
Germany
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