Capital controls, risk and liberalization cycles
By: Laura Alfaro, Fabio Kanczuk
Contributors: Kanczuk, Fabio, 1969-; Harvard Business School. Division of Research
Series: Working paper / Division of Research, Harvard Business School -- 02-013; Working paper (Harvard Business School. Division of Research) -- 02-013
Publisher: Division of Research, Harvard Business School
Published: 2001
Place of publication: Boston
Language: eng
Number of pages: 34
Description: In this paper, we have constructed an Overlapping-Generations model where agents vote on whether to open or close the economy to international capital flows. If the production function has a stochastic component, the political decisions are shaped by the risk over capital and labor returns. In an open economy, the capitalists (old) completely hedge their savings income. In contrast, in a closed economy, the workers (young) partiallyinsulate wages from the risk of the productivity shocks. We find three possibleequilibrium outcomes: economies that eventually remain open, those that eventually remain closed, and those that cycle between open and closed.
Notes: Includes bibliographical references.