Capital Controls, Risk, and Liberalization Cycles

23 Pages Posted: 17 Aug 2004

See all articles by Laura Alfaro

Laura Alfaro

Harvard University

Fabio Kanczuk

University of São Paulo (USP) - Department of Economics

Abstract

The paper presents an overlapping-generations model where agents vote on whether to open or close the economy to international capital flows. Political decisions are shaped by the risk over capital and labor returns. In an open economy, the capitalists (old) completely hedge their savings income. In contrast, in a closed economy, the workers (young) partially insulate wages from the productivity shocks. There are three possible equilibrium outcomes: economies that eventually remain open; those that eventually remain closed; and those that cycle between open and closed. In line with the stylized facts, cycles are more common in economies with intermediate development levels.

Suggested Citation

Alfaro, Laura and Kanczuk, Fabio, Capital Controls, Risk, and Liberalization Cycles. Available at SSRN: https://ssrn.com/abstract=573071

Laura Alfaro

Harvard University ( email )

Cambridge, MA 02138
United States

Fabio Kanczuk (Contact Author)

University of São Paulo (USP) - Department of Economics ( email )

Av. Prof. Luciano Gualberto 908
Sao Paulo SP, 05508-900
Brazil
011-55-11-818-5915 (Phone)
011-55-11-3661-7333 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
27
Abstract Views
552
PlumX Metrics