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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

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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Bibliographic Info

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;

References

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Citations

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Cited by:
  1. Eduardo Lora & Ugo Panizza, 2002. "Structural Reforms in Latin America under Scrutiny," Research Department Publications 4301, Inter-American Development Bank, Research Department.
  2. Aleš Bulíø & Andrew Swiston, 2009. "Emerging Market Countries Don’t Believe in Fiscal Stimuli: Should We Blame Ricardo?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(2), pages 153-164, June.
  3. Eduardo Lora & Ugo Panizza, 2002. "Las reformas estructurales en América Latina bajo la lupa," Research Department Publications 4302, Inter-American Development Bank, Research Department.

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