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Does financial reform increase or reduce savings ?

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Author Info
Bandiera, Oriana
Caprio, Gerard
Honohan, Patrick
Schiantarelli, Fabio

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Abstract

Using Principal Components, the authors construct a 25-year time series index of financial liberalization for each of eight developing countries: Chile, Ghana, Indonesia, the Republic of Korea, Malaysia, Mexico, Turkey, and Zimbabwe. They use it in an econometric analysis of private saving in those countries. They find that the pattern of effects differs across countries. In sum, liberalization seems to have had a significant positive direct effect on saving in Ghana and Turkey and a negative effect in Korea and Mexico. No clear effect is discernible in the other countries. There is no evidence of significant, positive, and sizable interest-rate effects. Their results must be taken as an indication that there is no firm evidence that financial liberalization will increase saving. Indeed, under some circumstances, liberalization will be associated with a drop in saving. All in all, it would be unwise to rely on increased private saving as a channel through which financial liberalization can be expected to increase growth. Instead, improved resource allocation must be the primary channel.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2062.

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Date of creation: 28 Feb 1999
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Handle: RePEc:wbk:wbrwps:2062

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Keywords: Economic Theory&Research; Insurance&Risk Mitigation; Payment Systems&Infrastructure; Banks&Banking Reform; Environmental Economics&Policies; Banks&Banking Reform; Economic Theory&Research; Insurance&Risk Mitigation; Environmental Economics&Policies; Insurance Law;

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References listed on IDEAS
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.:
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  8. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1992-2), pages 61-156. [Downloadable!]
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  18. repec:fth:harver:1435 is not listed on IDEAS
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  26. James MacKinnon, 1990. "Critical Values for Cointegration Tests," University of California at San Diego, Economics Working Paper Series 90-4, Department of Economics, UC San Diego. [Downloadable!]
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  28. Honohan, Patrick & Atiyas, Izak, 1993. "Intersectoral Financial Flows in Developing Countries," Economic Journal, Royal Economic Society, vol. 103(418), pages 666-79, May. [Downloadable!] (restricted)
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  29. Koskela, Erkki & Loikkanen, Heikki A. & Viren, Matti, 1992. "House prices, household saving and financial market liberalization in Finland," European Economic Review, Elsevier, vol. 36(2-3), pages 549-558, April. [Downloadable!] (restricted)
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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. Eduardo Lora & Ugo Panizza, 2002. "Structural Reforms in Latin America under Scrutiny," RES Working Papers 4301, Inter-American Development Bank, Research Department. [Downloadable!]
    Other versions:
  2. Eduardo Lora & Ugo Panizza, 2002. "Las reformas estructurales en América Latina bajo la lupa," RES Working Papers 4302, Inter-American Development Bank, Research Department. [Downloadable!]
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