Macroeconomic effects of restrictions on foreign security ownership

This dissertation consists of two papers on international capital movements. The first part theoretically analyzes the macroeconomic effects of restrictions imposed by official authorities on foreign investment. The main result from the theoretical model is that restrictions on foreign investment by domestic residents can produce a source of cheap investment funds for domestic industries. This in turn would stimulate investment and domestic economic growth and could lead to a favorable judgment on the policy. However, economic welfare as measured by expected utility is reduced despite the high capital accumulation and increased economic growth.The second part of this dissertation examines the Japanese economy to see how closely its financial market has been connected to the world financial market and how well the theoretical model corresponds to reality. Japan is now well internationalized so far as some measures of internationalization are concerned: the volume of financial transactions, the correlation between domestic saving and domestic investment and covered interest parity. The empirical research also provides some evidence that financial services promote domestic production but an increase in net capital outflows retards its growth. However, it seems not to be clear how policy changes relating to international financial transactions affect physical capital accumulation.