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Before and After Financial Liberalization

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  • Reinhart, Carmen
  • Tokatlidis, Ioannis

Abstract

Given all the ambiguities about the outcomes of the financial liberalization process, it is relevant to ask what the systematic, cross-country evidence reveals on several questions, including: What happens to key macroeconomic and variables following domestic and external financial liberalization? Are there significant differences in the outcomes between emerging and developed economies? Are there regional patterns in the response to financial sector reforms? Does a country’s level of development shape the outcome of financial sector reforms? These are the questions we focus on in this paper. With greater certainty, financial liberalization appears to deliver: higher real interest rates (possibly reflecting the allocation of capital toward more productive, higher return projects.); lower investment, but not lower growth (again, possibly owing to a shift to more productive uses of financial resources); a higher level of foreign direct investment; and high gross capital flows--the catch is that occurs only in the higher income countries. Liberalization appears to deliver financial deepening, as measured by the credit and monetary aggregates--but, again, low income countries do not appear to show clear signs of such a benefit As regards saving, anything goes. In some regions saving increased following financial sector reforms; but in the majority of cases saving declined following the reforms.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6986.

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Date of creation: 2005
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Handle: RePEc:pra:mprapa:6986

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Keywords: financial liberalization; developing; advanced; saving; capital flows;

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Cited by:
  1. Philip Arestis & Machiko Nissanke & Howard Stein, 2003. "Finance and Development: Institutional and Policy Alternatives to Financial Liberalization," Economics Working Paper Archive wp_377, Levy Economics Institute.
  2. Miguel A. Segoviano Basurto, 2006. "Portfolio Credit Risk and Macroeconomic Shocks," IMF Working Papers 06/283, International Monetary Fund.
  3. Beatriz de Blas & Katheryn Russ, 2010. "FDI in the Banking Sector," Working Papers, University of California, Davis, Department of Economics 108, University of California, Davis, Department of Economics.
  4. Stanley Fischer, 2003. "Globalization and Its Challenges," American Economic Review, American Economic Association, American Economic Association, vol. 93(2), pages 1-30, May.
  5. Adenutsi, Deodat E., 2010. "Financial development, bank savings mobilization and economic performance in Ghana: evidence from a multivariate structural VAR," MPRA Paper 29571, University Library of Munich, Germany.
  6. Charles Goodhart & Boris Hofmann & Miguel Segoviano, 2004. "Bank Regulation and Macroeconomic Fluctuations," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 20(4), pages 591-615, Winter.
  7. Stanley Fischer, 2002. "Financial Crises and Reform of the International Financial System," NBER Working Papers 9297, National Bureau of Economic Research, Inc.
  8. Stanley Fischer, 2003. "Financial crises and reform of the international financial system," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 139(1), pages 1-37, March.
  9. Mukerji, Purba, 2009. "Ready for capital account convertibility?," Journal of International Money and Finance, Elsevier, Elsevier, vol. 28(6), pages 1006-1021, October.
  10. Miguel Segoviano, 2006. "Conditional Probabilty of Default Methodolgy," FMG Discussion Papers, Financial Markets Group dp558, Financial Markets Group.
  11. C. A. E. Goodhart & Miguel A. Segoviano Basurto, 2009. "Banking Stability Measures," IMF Working Papers 09/4, International Monetary Fund.
  12. Lucio Vinhas de Souza, 2004. "Financial Liberalization and Business Cycles: The Experience of Future EU Member States in the Baltics and Central Eastern Europe," International Finance, EconWPA 0403009, EconWPA.
  13. de Castro Alxandre Samy & Goldin, Ian & Pereira da Silva, Luiz A., 2002. "Relative returns to policy reform - evidence from controlled cross-country regressions," Policy Research Working Paper Series 2898, The World Bank.
  14. Layal Mansour, 2013. "International Reserves versus External Debts : Can International reserves avoid future Financial Crisis in indebted Countries ?," Working Papers, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure 1329, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  15. Min Shrestha & Khorshed Chowdhury, 2007. "Testing financial liberalization hypothesis with ARDL modelling approach," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 17(18), pages 1529-1540.
  16. James Obben & Monique Waayer, 2011. "New Zealand's old-age pension scheme and household saving," International Journal of Social Economics, Emerald Group Publishing, Emerald Group Publishing, vol. 38(9), pages 767-788, August.

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