In this paper, an incomplete financial market model was built to illustrate the impacts of the market incompleteness on the benefits of trade liberalization. Particularly, it will focus on the investigation of the impacts of different sequences of opening up the goods market. That is, should the government open up international trade simultaneously with the opening up of the domestic trade, i.e. implementing a 'shock therapy' approach? Or should the government liberalize the domestic goods market first, and then deregulate the international trade, i.e. following a 'gradualism' approach? This paper proves that the gradualism approach by opening up the domestic goods market before liberalization of the international trade can guarantee the successive improvement of everyone's welfare. Therefore, the gradualism approach is a Pareto-improvement sequence.
|Title of host publication
|International Journal of Finance and Economics
|Number of pages
|Published - 1 Jan 2008
Bibliographical notePaper presented at the Conference on "International Financial Markets and the Macroeconomy", 13-14 July 2006, Hong Kong.
- Incomplete market
- Trade liberalization