The paper analyzes the effects of increasing capital market integration on production and market structures, trade and capital flows as well as national and global welfare. In order to facilitate the analysis of the integration process, three stages of capital market integration are defined. First, capital is internationally immobile, secondly, capital is partly mobile, and finally perfect capital mobility is considered. The analysis is carried by means of a general equilibrium model of international trade which incorporates the new trade theory as well as aspects of the theory of multinational enterprises. Simulations of each of the three versions of the model for different absolute and relative factor endowments provide insights into the changes that are brought about by capital market integration.
Market Structure International Trade Foreign Direct Investment Multinational Enterprise