Capital mobility ? a resource curse or blessing? How, when, for whom?

This paper investigates which of the two countries \resource-rich or resourcepoor\ gains from capital market integration and capital tax competition. We develop a framework involving vertical linkages via resource-based inputs as well as international fiscal linkages between resource-rich and resource-poor countries. Our analysis shows that capital market integration causes capital flows from resourcepoor countries to resource-rich countries and thus improves production efficiency and global welfare. However, such gains accrue only to resource-poor countries, and capital mobility might even hurt resource-rich countries. In response to capital flows, the governments of both resource-rich and resource-poor countries have an incentive to tax capital. Such taxations would enable resource-rich countries to exploit their efficiency gains through capital market integration and become winners in the tax game.