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: | 22 Feb 2024 15:06 |
| URI: | http://eprints.lse.ac.uk/id/eprint/121723 |
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