Opposition to capital market opening

Philipp Engler and Alexander Wulff

No 2011/17, Discussion Papers from Free University Berlin, School of Business & Economics

Abstract: We employ a neoclassical growth model to assess the impact of financial liberalization in a developing country on capital owners` and workers` consumption and welfare. We find in a baseline calibration for an average non-OECD country that capitalists suffer a 42 percent reduction in permanent consumption because capital inflows reduce their return to capital while workers gain 8 percent of permanent consumption because capital inflows increase wages. These huge gross impacts contrast with the small positive net effect found in a neoclassical represent agent model by Gourinchas and Jeanne (2006). We further show that the result for capitalists is insensitive to enhanced productivity catch-up processes induced by capital inflows. Our findings can help explain why poorer countries tend to be less financially open as capitalists` losses are largest for countries with the lowest capital stocks, inducing strong opposition to capital market opening.

Keywords: Capital flows; international financial integration; growth; neoclassical model; heterogenous agents (search for similar items in EconPapers)
JEL-codes: E13 E25 F2 F3 F43 O11 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-ifn and nep-opm
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Related works:
Journal Article: Opposition to capital market opening (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fubsbe:201117

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