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Welfare Gains from Financial Liberalization

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  • Kenichi Ueda
  • Robert M. Townsend

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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Bibliographic Info

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

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Length: 40
Date of creation: 01 Jul 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/154

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Keywords: Economic growth; Financial sector; Financial systems; Economic models;

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Citations

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Cited by:
  1. Bonfiglioli, Alessandra, 2008. "Financial integration, productivity and capital accumulation," Journal of International Economics, Elsevier, vol. 76(2), pages 337-355, December.
  2. Jeremy Greenwood & Juan M. Sanchez & Cheng Wang, 2010. "Quantifying the Impact of Financial Development on Economic Development," Economie d'Avant Garde Research Reports 17, Economie d'Avant Garde.
  3. Harold L. Cole & Jeremy Greenwood & Juan M. Sánchez, 2012. "Why doesn’t technology flow from rich to poor countries?," Working Papers 2012-040, Federal Reserve Bank of St. Louis.
  4. Sanchita Mukherjee & Rina Bhattacharya, 2011. "Inflation Targeting and Monetary Policy Transmission Mechanisms in Emerging Market Economies," IMF Working Papers 11/229, International Monetary Fund.
  5. Kenichi Ueda, 2008. "Life Expectancy and Income Convergence in the World:A Dynamic General Equilibrium Analysis," IMF Working Papers 08/158, International Monetary Fund.
  6. Alexander Karaivanov & Sonia Ruano & Jesús Saurina & Robert Townsend, 2010. "No bank, one bank, several banks: does it matter for investment?," Banco de Espa�a Working Papers 1003, Banco de Espa�a.
  7. Enrica Detragiache & Gianni De Nicoló & Senay Agca, 2007. "Financial Reforms, Financial Openness, and Corporate Borrowing: International Evidence," IMF Working Papers 07/186, International Monetary Fund.
  8. Kym Anderson, 2012. "Costing Global Trade Barriers, 1900 to 2050," Departmental Working Papers 2012-08, The Australian National University, Arndt-Corden Department of Economics.
  9. Ziv Chinzara & Radhika Lahiri, 2012. "Financial Intermediation and Costly Technology Adoption under Uncertainty: A Political Economy Perspective," School of Economics and Finance Discussion Papers and Working Papers Series 295, School of Economics and Finance, Queensland University of Technology.

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