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

37 Pages Posted: 23 Jan 2019

See all articles by Panagiotis Karavitis

Panagiotis Karavitis

University of Glasgow - Adam Smith Business School

Michael S. Michael

University of Cyprus - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: January 17, 2019

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 fi nd 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.

Keywords: capital-market integration, imperfect competition, international duopoly

JEL Classification: F12, F15

Suggested Citation

Karavitis, Panagiotis and Michael, Michael S., Welfare Effects of Capital-Market Integration in the Presence of an International Duopoly (January 17, 2019). CESifo Working Paper Series No. 7340, Available at SSRN: https://ssrn.com/abstract=3317609

Panagiotis Karavitis

University of Glasgow - Adam Smith Business School ( email )

University Avenue
Glasgow
Glasgow, West End G12 8QQ
United Kingdom

HOME PAGE: http://https://www.gla.ac.uk/schools/business/staff/panagiotiskaravitis/

Michael S. Michael (Contact Author)

University of Cyprus - Department of Economics ( email )

75 Kallipoleos Street
P.O. Box 20537
1678 Nicosia
Cyprus
357-22892433 (Phone)
357-22892432 (Fax)

HOME PAGE: http://www.econ.ucy.ac.cy/staff/michael.htm

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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