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Domestic Responses to Free Trade and Free Finance in OECD Countries

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  • Verdier, Daniel

Abstract

For the first time in modern history, free trade coexists with free finance. Free trade and free finance (defined as the deregulation and internationalization of banking and finance) are not mutually reinforcing, but cause a mismatch between the demand and supply of financial instruments. Investors want more marketable instruments whereas entrepreneurs want more transaction-specific instruments. This mismatch potentially hurts small firms and local interests most. What can they do about it? It depends on state institutions. The more centralized the state, the fewer opportunities available to potential losers to curb free finance. Free finance is most successful in centralized countries, where resistance to free finance is least strongly felt. This hypothesis is systematically tested on a sample of OECD countries.

Suggested Citation

  • Verdier, Daniel, 1999. "Domestic Responses to Free Trade and Free Finance in OECD Countries," Business and Politics, Cambridge University Press, vol. 1(3), pages 279-316, November.
    • Handle: RePEc:cup:buspol:v:1:y:1999:i:03:p:279-316_00
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