Political Economy Aspects of Trade and Financial Liberalization: Implications for Sequencing

24 Pages Posted: 15 Feb 2006

Date Written: December 1999

Abstract

This paper integrates a two-period overlapping generations model with a standard two-sector Hecksher-Ohlin trade model and analyzes the impact of uncertainty on domestic investment in the exportable and importable sectors, the political economy linkages between trade and financial liberalization, and the implications for sequencing. Under certain assumptions financial liberalization leads to a movement of resources in the opposite direction to that implied by trade liberalization, thus defeating one of the objectives of tariff reform. When political economy linkages are taken into account, however, the indirect effects of financial liberalization may offset the direct effects and encourage a movement of resources in the desired direction.

Keywords: Investment, Uncertainity, Political Economy, Financial Liberalization, Trade Liberalization

JEL Classification: E21, E22, E25, F1, F21

Suggested Citation

Bhattacharya, Rina, Political Economy Aspects of Trade and Financial Liberalization: Implications for Sequencing (December 1999). IMF Working Paper No. 99/159, Available at SSRN: https://ssrn.com/abstract=880686

Rina Bhattacharya (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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