The East Asian crisis of 1997-98 and the Mexican crisis of 1994 generated much concern among policy analysts regarding the role of macroeconomic policies in the management of capital inflows. A series of economic reform measures including liberalization of foreign capital inflows were initiated in India since the early nineties. Using the vector autoregression (VAR) method, this paper specifica...

We study how …nancial frictions and the saving rate shape the long-run e¤ects of trade liberalization on income, consumption and the distribution of wealth in …nancially underdeveloped economies. In our model, regardless of whether the capital account is open or not, trade liberalization reduces the share of wealth in the hands of entrepreneurs and may well reduce steady state consumption and i...