As the twentieth century draws to a close, many countries are making headlinegrabbing attempts at economic and political liberalization. The former goal typically entails shrinking the reach of government, the latter the extension of individual rights. As a practical matter, the two goals are not always compatible. To protect individuals against theft and coercion, one needs a state strong enou...

We consider a simple political-economic model where capitalist investment is constrained by the government's temptation to expropriate. Political liberalization can relax this constraint, increasing the government's revenue, but also increasing the ruler's political risks. We analyze the ruler's optimal liberalization, where our measure of political liberalization is the probability of the rule...

Evidence supporting the positive effects of capital account liberalization on growth is mixed at best. Even after conditioning on the quality of domestic financial institutions, a significant number of studies still find no effect. One possible explanation is reverse causation. If low growth countries liberalize in order to spur growth, the observed correlation between growth and liberalization...

In the early and mid-1990s, most economists and policymakers supported rapid capital account liberalization for emerging markets. Liberalization was expected to have widespread benefits. It was predicted to increase capital inflows, thereby financing investment and raising growth. Capital inflows—especially in the form of direct investment—would provide improved technology and management techni...

Why many transition economies succeeded by pursuing policies that are so different from the radical economic liberalization (shock therapy) that is normally credited for the economic success of central European countries? First, optimal policies are context dependent, they are specific for each stage of development and what worked in Slovenia cannot be expected to work in Mongolia. Second, even...

Writings on the macroeconomic impact of capital account liberalization find few, if any, robust effects of liberalization on real variables. In contrast to the prevailing wisdom, I argue that the textbook theory of liberalization holds up quite well to a critical reading of this literature. The lion's share of papers that find no effect of liberalization on real variables tell us nothing about ...

Computable general equilibrium (CGE) models of world trade, often presented as demonstrating the benefits of trade liberalization, now make much more modest forecasts than they did just a few years ago. The estimated benefits are not only small in the aggregate, but also skewed toward developed countries; the expected contribution of trade liberalization to economic development and poverty alle...

Hecksher-Ohlin model predicts that gains to trade should flow to abundant factors, which suggests that in developing countries, unskilled labor would benefit most from trade liberalization. The rising skill-premium in the US is often cited in support of standard trade theory. However, these predictions have been challenged by Cunat and Maffezzoli (2001) and Kremer and Maskin (2003). According t...

The 1990s was the decade of privatization and deregulation. Although the strategy was largely pioneered in the mature Western economies, the notion that liberalization could improve economic efficiency and at the same time generate income streams that could alleviate fiscal imbalances was rapidly extended to developing countries. Private sector investors would pay to acquire publicly owned asse...