You are a top Treasury official for a developing country who has been asked for advice on how to best open the nation's stock market to foreign investment. Previously, the government did not permit foreigners to purchase domestic stock. Now, the government has a plan to create two markets: one for domestic residents and one for foreign investment. What are the potential drawbacks of this system, compared to allowing both domestic and foreign investors to trade in the same market? What are the larger implications for economic efficiency? How might the government be able to address these issues?

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The Answer of You are a top Treasury official for a developing country who has been asked for advice on how to best open the nation's stock market to foreign investment. Previously, the government did not permit foreigners to purchase domestic stock. Now, the government has a plan to create two markets: one for domestic residents and one for foreign investment. What are the potential drawbacks of this system, compared to allowing both domestic and foreign investors to trade in the same market? What are the larger implications for economic efficiency? How might the government be able to address these issues?

You Are a Top Treasury Official for a Developing Country