Political Economy Aspects of Trade and Financial Liberalization: Implications for Sequencing

November 1, 1999

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Rina Bhattacharya. Political Economy Aspects of Trade and Financial Liberalization: Implications for Sequencing, (USA: International Monetary Fund, 1999) accessed October 14, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper integrates a two-period overlapping generations model with a standard two-sector Hecksher-Ohlin trade model and analyzes the impact of uncertainty on domestic investment in the exportable and importable sectors, the political economy linkages between trade and financial liberalization, and the implications for sequencing. Under certain assumptions financial liberalization leads to a movement of resources in the opposite direction to that implied by trade liberalization, thus defeating one of the objectives of tariff reform. When political economy linkages are taken into account, however, the indirect effects of financial liberalization may offset the direct effects and encourage a movement of resources in the desired direction.

Subject: Deposit rates, Domestic savings, External debt, Financial services, International trade, National accounts, Tariffs, Taxes, Trade liberalization

Keywords: Demand schedule, Deposit rates, Domestic savings, Financial Liberalization, Financial market, Financial market reform, Household saving, Interest rate rL, Investment, Marginal revenue, Market equilibrium, Political Economy, Tariffs, Trade Liberalization, Transition economy, Uncertainity, WP

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1999/159
Stock No:

WPIEA1591999
ISBN:

9781451857658
ISSN:

1018-5941

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