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Welfare Gains from Financial Liberalization

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Author Info
Robert M. Townsend
Kenichi Ueda

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Abstract

Financial liberalization has been a controversial issue as there is little empirical evidence for its positive effects on economic growth. However, we find sizable welfare gains, 1 to 28 percent of permanent consumption though, consistent with the literature, the gain in the economic growth is ambiguous, -0.2 to 0.7 percent. We apply a canonical growth model with endogenous financial deepening to Thailand, 1976-96. As effective bank transaction costs decline, more people take advantage of financial services. We estimate the gains by comparing model simulations under the historical episode of financial liberalization to those under a hypothetical continuation of financial repression.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/154.

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Length: 40 pages
Date of creation: 12 Jul 2007
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Handle: RePEc:imf:imfwpa:07/154

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Keywords: Working Paper ; Financial sector ; Financial systems ; Economic growth ; Economic models ; Thailand ;

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  4. Abdul Abiad & Nienke Oomes & Kenichi Ueda, 2004. "The Quality Effect: Does Financial Liberalization Improve the Allocation of Capital?," IMF Working Papers 04/112, International Monetary Fund. [Downloadable!]
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  5. Graciela Kaminsky & Sergio Schmukler, 2003. "Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization," NBER Working Papers 9787, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Kenichi Ueda, 2006. "Banks as Coordinators of Economic Growth," IMF Working Papers 06/264, International Monetary Fund. [Downloadable!]
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gianni De Nicoló & Senay Agca & Enrica Detragiache, 2007. "Financial Reforms, Financial Openness, and Corporate Borrowing: International Evidence," IMF Working Papers 07/186, International Monetary Fund. [Downloadable!]
  2. Kenichi Ueda, 2008. "Life Expectancy and Income Convergence in the World:A Dynamic General Equilibrium Analysis," IMF Working Papers 08/158, International Monetary Fund. [Downloadable!]
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