Portfolio autarky: A welfare analysis |
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Authors: | John Kareken Neil Wallace |
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Institution: | University of Minnesota, Minneapolis, MN 55455, USA;Federal Reserve Bank of Minneapolis, Minneapolis, MN 55410, USA |
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Abstract: | A variant of the standard Heckscher-Ohlin model, a model of a two-country world economy populated by Samuelsonian overlapping generations, is presented and then used in a welfare analysis of two international economic policy regimes: A laissez-faire regime, characterized by free trade in goods and complete freedom of portfolio choice; and a portfolio autarky regime, characterized by free trade in goods and a prohibition, applicable world-wide, on the ownership of foreign assets (land). Using a ‘growth model’ version of the traditional welfare criterion, it is shown that the laissez-faire regime is optimal and that the portfolio autarky regime is not. |
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