Limited Participation, Income Distribution and Capital Account Liberalization

Eva de Francisco ()

No 454, Computing in Economics and Finance 2005 from Society for Computational Economics

Abstract: This paper examines theoretically, using a two-country real-business-cycle model, the effects of capital-market liberalization when there is limited participation in national financial markets. It is assumed that workers cannot smooth consumption as well as do stockholders, and therefore, liberalization may hurt workers. This dynamic model evaluates some claims---made particularly by the "anti-globalization" movement---that capital movements hurt workers, while benefitting stockholders. Quantitatively, liberalization makes workers better off in the long run, since the new capital allocation and increased insurance foster capital accumulation, raising wages that offset the output fluctuations due to capital flows. However, transitional effects may overturn these long-run benefits

Keywords: Capital Account Liberalization; Globalization and Limited Participation (search for similar items in EconPapers)
JEL-codes: E20 F20 F30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-fmk and nep-mac
Date: 2005-11-11
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