Capital markets liberalization and global imbalances
This paper studies the consequences of capital markets liberalization for global imbalances (non-zero foreign asset positions) when countries are heterogeneous in the degree of financial market development. Countries characterized by more advanced financial markets tend to accumulate large foreign liabilities while countries with less developed markets tend to accumulate positive foreign asset positions. The paper also shows
that the formation of global imbalances takes a long period of time and their long-term values could reach very high levels as a percentage of domestic production.
Incomplete markets, international mobility of capital
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