A Welfare Analysis of Capital Account Liberalization

Haiping Zhang () and Juergen von Hagen

No 19-2007, Working Papers from Singapore Management University, School of Economics

Abstract: We develop a model of a small open economy with credit market frictions to analyze the consequences of capital account liberalization. We show that financial opening facilitates the in ows of cheap foreign funds and improves production efficiency. Reforms increasing labor market exibility can further improve such efficiency gains. However, capital account liberalization also has important distributional consequences. Specifically, it may be impossible to use public transfers to fully compensate the loss of those negatively affected by capital account liberalization. This explains why financial opening often meets fierce opposition even though it leads to efficiency gains for the economy as a whole. From a practical perspective, capital controls should be lifted gradually for a smooth transition.

Keywords: Capital account liberalization; Capital controls; Financial frictions; Macroeconomic uctuations; Asset price overshooting (search for similar items in EconPapers)
JEL-codes: E32 E44 F41 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2007-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in SMU Economics and Statistics Working Paper Series

Downloads: (external link)
https://mercury.smu.edu.sg/rsrchpubupload/10844/Welfare_Zhang.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Server closed connection without sending any data back

Related works:
Journal Article: A Welfare Analysis of Capital Account Liberalization* (2008)
Working Paper: A welfare analysis of capital account liberalization (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:siu:wpaper:19-2007

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Singapore Management University, School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by QL THor ().