We employ a neoclassical growth model to assess the impact of financial liberalization in a developing country on capital owners` and workers` consumption and welfare. We find in a baseline calibration for an average non- OECD country that capitalists suffer a 42 percent reduction in permanent consumption because capital inflows reduce their return to capital while workers gain 8 percent of permanent con- sumption because capital inflows increase wages. These huge gross impacts contrast with the small positive net effect found in a neoclas- sical represent agent model by Gourinchas and Jeanne (2006). We further show that the result for capitalists is insensitive to enhanced productivity catch-up processes induced by capital inflows. Our find- ings can help explain why poorer countries tend to be less financially open as capitalists` losses are largest for countries with the lowest capital stocks, inducing strong opposition to capital market opening.
