A Welfare Analysis of Capital Account Liberalization
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 inflows of cheap foreign funds and improves production efficiency. Reforms increasing labor market exibility can furth...
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2008
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sg-smu-ink.soe_research-14222019-04-27T05:09:51Z A Welfare Analysis of Capital Account Liberalization von Hagen, Jürgen ZHANG, Haiping 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 inflows 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. 2008-08-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/soe_research/423 info:doi/10.1111/j.1467-9396.2008.00746.x https://ink.library.smu.edu.sg/context/soe_research/article/1422/viewcontent/RIE_vonHagen_Zhang.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Economics eng Institutional Knowledge at Singapore Management University capital account liberalization capital controls financial frictions macroeconomic fluctuations asset price overshooting Economics International Economics |
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capital account liberalization capital controls financial frictions macroeconomic fluctuations asset price overshooting Economics International Economics von Hagen, Jürgen ZHANG, Haiping A Welfare Analysis of Capital Account Liberalization |
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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 inflows 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. |
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text |
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von Hagen, Jürgen ZHANG, Haiping |
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von Hagen, Jürgen ZHANG, Haiping |
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von Hagen, Jürgen |
title |
A Welfare Analysis of Capital Account Liberalization |
title_short |
A Welfare Analysis of Capital Account Liberalization |
title_full |
A Welfare Analysis of Capital Account Liberalization |
title_fullStr |
A Welfare Analysis of Capital Account Liberalization |
title_full_unstemmed |
A Welfare Analysis of Capital Account Liberalization |
title_sort |
welfare analysis of capital account liberalization |
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Institutional Knowledge at Singapore Management University |
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2008 |
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https://ink.library.smu.edu.sg/soe_research/423 https://ink.library.smu.edu.sg/context/soe_research/article/1422/viewcontent/RIE_vonHagen_Zhang.pdf |
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