Opposition to FDI and financial shocks |
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| Affiliation: | 1. Rutgers University and NBER, USA;2. Federal Reserve Board, Mail Stop 20, 20th and C Streets NW, Washington, DC 20051, USA;3. Dartmouth University and NBER, USA;4. Federal Reserve Bank of Philadelphia, USA;1. Oxford Centre for the Analysis of Resource Rich Economies, Department of Economics, University of Oxford, United Kingdom;2. School of Economics, University of Sydney, Australia;3. Centre for Applied Macroeconomic Analysis, ANU, Australia |
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| Abstract: | We identify conditions under which emerging market's capitalists would oppose financial reform in an economy where entrepreneurs can borrow internationally, but foreign agents cannot hold domestic equity. A financial crisis that raises the domestic interest rate may induce the emerging market's capitalists to support opening up the economy to FDI. Even in these circumstances, the emerging market's capitalists would prefer a partial reform to a comprehensive one. If the attitude of capitalists is the obstacle to a comprehensive reform, a side payment from labor to the capitalists may be needed to induce a reform. |
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