Article ID Journal Published Year Pages File Type
964771 Journal of International Money and Finance 2006 17 Pages PDF
Abstract
As financial markets become completely liberalized, countries gain from improved risk sharing, but less wealthy countries can no longer profit from borrowing abroad at the lower rate and reinvesting at home at the higher rate. With decreasing rather than constant returns to capital, the gain from risk sharing is more likely to dominate the loss of the difference between the borrowing rate abroad and the decreasing reinvestment rate at home. Complete liberalization is likely to be optimal for less wealthy countries unless their labor endowment is large, their productivity is large, or holdings by foreigners are small, as in China.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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