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Adjusting to capital account liberalization

Aoki, Kosuke, Benigno, Gianluca Dimiano Carmelo and Kiyotaki, Nobuhiro (2010) Adjusting to capital account liberalization. CEP Discussion Papers (CEPDP1014). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

We study theoretically how the adjustment to liberalization of international financial transaction depends upon the degree of domestic financial development. Using a model with domestic and international borrowing constraints, we show that, when the domestic financial system is underdeveloped, capital account liberalization is not necessarily beneficial because TFP stagnates in the long-run or employment decreases in the short-run. Government policy, including allowing foreign direct investment, can mitigate the possible loss of employment, but cannot eliminate it unless the domestic financial system is improved.

Item Type: Monograph (Discussion Paper)
Official URL: https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information: © 2010 The Author(s)
Divisions: Centre for Economic Performance
Economics
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
JEL classification: F - International Economics > F3 - International Finance > F32 - Current Account Adjustment; Short-Term Capital Movements
Date Deposited: 22 Feb 2024 15:06
Last Modified: 14 Sep 2024 04:44
URI: http://eprints.lse.ac.uk/id/eprint/121723

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