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Financial Institutions' Expertise and Growth Effects of Financial Liberalisation

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  • L. Deidda

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Abstract

This paper analyses the real effects of financial development subsequent to financial liberalisation in an economy with risk averse savers and learning by lending. Transition from full financial repression to full financial liberalisation might initially slow down the growth process or even induce a recession, whenever the initial level of valuable investments known by the financial instutions (informed capital ) is suficiently scanty. However, lending activity leads to accumulation of information (learning by lending) regarding valuable investments. This way, as intermediaries become experts, the allocative efficiency they are able to guarantee ameliorates so that, in the long run, the effects of financial liberalisation are eventually positive

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Bibliographic Info

Paper provided by Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia in its series Working Paper CRENoS with number 200105.

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Date of creation: 2001
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Handle: RePEc:cns:cnscwp:200105

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Related research

Keywords: financial repression; financial liberalisation; information capital; learning by lending; economic growth;

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References

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  1. Devereux, Michael B & Smith, Gregor W, 1994. "International Risk Sharing and Economic Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 535-50, August.
  2. Fry, Maxwell J, 1989. "Financial Development: Theories and Recent Experience," Oxford Review of Economic Policy, Oxford University Press, vol. 5(4), pages 13-28, Winter.
  3. Bencivenga, Valerie R & Smith, Bruce D, 1991. "Financial Intermediation and Endogenous Growth," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 195-209, April.
  4. Roubini, N. & Sala-i-Martin, X., 1992. "A Growth Model of Inflation, Tax Evasion and Financial Repression," Papers 658, Yale - Economic Growth Center.
  5. Panicos O. Demetriades & Khaled A.Hussein, 1995. "Does Financial Development Cause Economic Growth? Time-Series Evidence from 16 Countries," Keele Department of Economics Discussion Papers (1995-2001) 95/13, Department of Economics, Keele University.
  6. Lee, Jaewoo, 1996. "Financial development by learning," Journal of Development Economics, Elsevier, vol. 50(1), pages 147-164, June.
  7. Acemoglu, Daron & Zilibotti, Fabrizio, 1997. "Was Prometheus Unbound by Chance? Risk, Diversification, and Growth," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 709-51, August.
  8. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
  9. Raghuram G. Rajan & Luigi Zingales, . "Financial Dependence and Growth," CRSP working papers 344, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  10. Cho, Yoon Je, 1989. "Finance and Development: The Korean Approach," Oxford Review of Economic Policy, Oxford University Press, vol. 5(4), pages 88-102, Winter.
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  12. Saint-Paul, Gilles, 1992. "Technological choice, financial markets and economic development," European Economic Review, Elsevier, vol. 36(4), pages 763-781, May.
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  14. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  15. Jaramillo, Fidel & Schiantarelli, Fabio & Weiss, Andrew, 1993. "The effect of financial liberalization on allocation of credit : panel data evidence for Ecuador," Policy Research Working Paper Series 1092, The World Bank.
  16. Stiglitz, Joseph E, 1989. "Financial Markets and Development," Oxford Review of Economic Policy, Oxford University Press, vol. 5(4), pages 55-68, Winter.
  17. Nouriel Roubini & Xavier Sala-i-Martin, 1991. "Financial Repression and Economic Growth," NBER Working Papers 3876, National Bureau of Economic Research, Inc.
  18. repec:cup:macdyn:v:5:y:2001:i:3:p:413-33 is not listed on IDEAS
  19. Fry, Maxwell J, 1997. "In Favour of Financial Liberalisation," Economic Journal, Royal Economic Society, vol. 107(442), pages 754-70, May.
  20. Maurice Obstfeld, 1992. "Risk-taking, global diversification, and growth," Discussion Paper / Institute for Empirical Macroeconomics 61, Federal Reserve Bank of Minneapolis.
  21. Jappelli, Tullio & Pagano, Marco, 1992. "Saving, Growth and Liquidity Constraints," CEPR Discussion Papers 662, C.E.P.R. Discussion Papers.
  22. Vittas, Dimitri, 1991. "The impact of regulation on financial intermediation," Policy Research Working Paper Series 746, The World Bank.
  23. Delano Villanueva & Abbas Mirakhor, 1990. "Strategies for Financial Reforms: Interest Rate Policies, Stabilization, and Bank Supervision in Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 37(3), pages 509-536, September.
  24. Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April.
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Cited by:
  1. G. Marletto, 2006. "La politica dei trasporti come politica per l’innovazione: spunti da un approccio evolutivo," Working Paper CRENoS 200605, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  2. L. Deidda & B. Fattouh, 2001. "Non linearity between finance and growth," Working Paper CRENoS 200104, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  3. R. Naylor, 2001. "Firm profits and the number of firms under unionised oligopoly," Working Paper CRENoS 200109, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  4. R. Naylor, 2001. "Industry profits and market size under bilateral oligopoly," Working Paper CRENoS 200108, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.

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