TY  - JOUR
AU  - Broner,Fernando A.
AU  - Ventura,Jaume
TI  - Rethinking the Effects of Financial Liberalization
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16640
PY  - 2010
Y2  - December 2010
UR  - http://www.nber.org/papers/w16640
L1  - http://www.nber.org/papers/w16640.pdf
N1  - Author contact info:
Fernando Broner
CREI and Universitat Pompeu Fabra
Ramon Trias Fargas, 25-27
08005 Barcelona
Spain
Tel: +34-935422601
Fax: +34-935421860
E-Mail: fbroner@crei.cat

Jaume Ventura
CREI
Universitat Pompeu Fabra
Ramon Trias Fargas, 25-27
08005-Barcelona
SPAIN
Tel: +34 93 542 1765
Fax: +34 93 542 1860
E-Mail: jventura@crei.cat
AB  - During the last few decades, many emerging markets have lifted restrictions on cross-border financial transactions. The conventional view was that this would allow these countries to: (i) receive capital inflows from advanced countries that would finance higher investment and growth; (ii) insure against aggregate shocks and reduce consumption volatility; and (iii) accelerate the development of domestic financial markets and achieve a more efficient domestic allocation of capital and better sharing of individual risks. However, the evidence suggests that this conventional view was wrong. In this paper, we present a simple model that can account for the observed effects of financial liberalization. The model emphasizes the role of imperfect enforcement of domestic debts and the interactions between domestic and international financial transactions. In the model, financial liberalization might lead to different outcomes: (i) domestic capital flight and ambiguous effects on net capital flows, investment, and growth; (ii) large capital inflows and higher investment and growth; or (iii) volatile capital flows and unstable domestic financial markets. The model shows how these outcomes depend on the level of development, the depth of domestic financial markets, and the quality of institutions
ER  -