International financial integration in the presence of an international duopoly

Panagiotis Karavitis and Michael Michael

The European Journal of Finance, 2022, vol. 28, issue 8, 825-847

Abstract: We revisit the debate on the benefits of international financial integration. We build a partial equilibrium imperfectly competitive model with two countries, where each country has one firm. Firms are Cournot competitors. Within this framework, we examine how the liberalization of international capital flows affects the welfare of each country and their joint welfare. Our results show that international capital flows' liberalization cannot guarantee the improvement in each country's welfare and their joint welfare. Overall, we find that international financial integration has very heterogeneous effects, depending on the market size, the initial level of capital stock and the degree of product competition.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjfi:v:28:y:2022:i:8:p:825-847

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DOI: 10.1080/1351847X.2021.1931389

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