Theorising free capital mobility: the perspective of developing countries

Abstract

AbstractUsing a simple economic model, this article illustrates the greatly diverging interests and preferences of developed and developing countries with regards to capital mobility. Theoretically, developed countries' gain from free capital mobility likely comes at the expense of risk and loss for developing countries due to the latter's financial vulnerability. It is also found that it does not pay for a developed country to push its developing counterparts into prematurely liberalising their capital markets because this type of impatience reduces the developed country's own first-mover advantage in strategic bargaining for capital mobility benefits.