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Using a 2-Sector Growth Model to Assess the Macroeconomic Consequences of Financial Liberalization

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  • Yuan K. Chou
  • Martin S. Chin
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    Abstract

    This paper uses the economic growth model with a financial sector developed in Chou and Chin (2001) to examine the conditions under which financial liberalization is desirable from the perspective of a policymaker who is concerned about the well-being of domestic households. Financial liberalization raises the rate of financial innovations and the efficiency of financial intermediation, but typically causes large foreign firms from leading-edge countries to displace smaller and less efficient domestic firms. Profits are repatriated abroad instead of accruing to domestic households as dividends. This trade-off is further complicated when we allow financial firms to hire talented foreigners once liberalization has taken place.

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    Bibliographic Info

    Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 835.

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    Length: 30 pages
    Date of creation: 2002
    Date of revision:
    Handle: RePEc:mlb:wpaper:835

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    Related research

    Keywords: Economic Growth; Finance; Financial Liberalization;

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    1. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
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