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Capital Account Liberalization as a Signal

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  • Leonardo Bartolini
  • Allan Drazen

Abstract

We present a model in which a government's current capital controls policy signals future policies. Controls on capital outflows evolve in response to news on technology, conditional on government attitudes towards taxation of capital. When there is uncertainty over government types, a policy of liberal capital outflows sends a favorable signal that may trigger a capital inflow. This prediction is consistent with the experience of several countries that have liberalized their capital account

Suggested Citation

  • Leonardo Bartolini & Allan Drazen, 1996. "Capital Account Liberalization as a Signal," NBER Working Papers 5725, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:5725
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    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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