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Full-Text Articles in Economics
Financial Development And International Capital Flows, Jürgen Von Hagen, Haiping Zhang
Financial Development And International Capital Flows, Jürgen Von Hagen, Haiping Zhang
Research Collection School Of Economics
We develop a general equilibrium model with nancial frictions in which internal capital (equity capital) and external capital (bank loans) have di erent rates of return. Financial development raises the rate of return on external capital but has a non-monotonic e ect on the rate of return on internal capital. We then show in a two-country model that capital account liberalization leads to out ow of nancial capital from the country with less developed nancial system. However, the direction of foreign direct investment (FDI, henceforth) depends on the exact degrees of nancial development in the two countries as well as …
A Welfare Analysis Of Capital Account Liberalization, Jürgen Von Hagen, Haiping Zhang
A Welfare Analysis Of Capital Account Liberalization, Jürgen Von Hagen, Haiping Zhang
Research Collection School Of Economics
We develop a model of a small open economy with credit market frictions to analyze the consequences of capital account liberalization. We show that nancial opening facilitates the in ows of cheap foreign funds and improves production e ciency. Reforms increasing labor market exibility can further improve such e ciency gains. However, capital account liberalization also has important distributional consequences. Speci cally, it may be impossible to use public transfers to fully compensate the loss of those negatively a ected by capital account liberalization. This explains why nancial opening often meets erce opposition even though it leads to e ciency …