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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; financial liberalization; gdp growth; financial system; growth rate; growth rates; gdp growth rate; gdp growth rates; financial repression; financial services; business cycle; deposit rate; business cycles; bond; growth model; financial institutions; government bond; interest rate controls; financial intermediation; rapid economic growth; financial economics; government bonds; bond yields; financial markets; capital formation; bonds; deposit growth; discount rate; government bond yields; real gdp; financial assets; corporate bond; financial sector performance; domestic financial system; economic growth rate; financial sector development; international capital; total factor productivity; interest rate ceilings; net present value; present value; discounting; financial intermediaries; international capital mobility; gross domestic product; financial liberalizations; international financial statistics; cost of business cycles; domestic financial liberalization; per capita income; financial globalization; growth theories; deposit rates; cost of business cycle; bond market; corporate bond market; financial reform; moral hazard; nominal interest rate; financial dependence; financial contracts;

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References

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  1. Oriana Bandiera & Gerard Caprio & Patrick Honohan & Fabio Schiantarelli, 2000. "Does Financial Reform Raise or Reduce Saving?," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 239-263, May.
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Citations

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Cited by:
  1. 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.
  2. Jeremy Greenwood & Juan M. Sanchez & Cheng Wang, 2012. "Quantifying the Impact of Financial Development on Economic Development," RCER Working Papers 572, University of Rochester - Center for Economic Research (RCER).
  3. Alessandra Bonfiglioli, 2007. "Financial Integration, Productivity and Capital Accumulation," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 680.07, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC), revised 19 Dec 2007.
  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. Enrica Detragiache & Gianni De Nicoló & Senay Agca, 2007. "Financial Reforms, Financial Openness, and Corporate Borrowing," IMF Working Papers 07/186, International Monetary Fund.
  6. Kenichi Ueda, 2008. "Life Expectancy and Income Convergence in the World," IMF Working Papers 08/158, International Monetary Fund.
  7. Kym Anderson, 2012. "Costing Global Trade Barriers, 1900 to 2050," Departmental Working Papers, The Australian National University, Arndt-Corden Department of Economics 2012-08, The Australian National University, Arndt-Corden Department of Economics.
  8. 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, School of Economics and Finance, Queensland University of Technology 295, School of Economics and Finance, Queensland University of Technology.
  9. Juan Sanchez & Jeremy Greenwood & Harold Cole, 2012. "Why Doesn't Technology Flow from Rich to Poor Countries?," 2012 Meeting Papers, Society for Economic Dynamics 834, Society for Economic Dynamics.

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