We study a two-sector, two-period model with learning externalities in the modern sector and imperfectly integrated capital markets. We find that higher capital market integration lowers the requirements on the learning pattern necessary for free trade to lead to an equilibrium with maximal...

To study how financial development depends on trade openness and different types of institutions, we present a political economy model in which the elite can repress the financial market at some cost. The elite can persuade the government to set an interest rate ceiling, and it can then channel...