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Does Financial Reform Raise or Reduce Saving?

Author

Listed:
  • Oriana Bandiera
  • Gerard Caprio
  • Patrick Honohan
  • Fabio Schiantarelli

Abstract

The effect of financial liberalization on private saving is theoretically ambiguous, not only because the link between interest rate levels and saving is itself ambiguous, but also because financial liberalization is a multidimensional and phased process, sometimes involving reversals. Using principal components, we construct 25-year time-series indices of financial liberalization for each of eight developing countries: Chile, Ghana, Indonesia, Korea, Malaysia, Mexico, Turkey, and Zimbabwe. These are employed in an econometric analysis of private saving in these countries. Our results cannot offer support for the hypothesis that financial liberalization will increase saving. On the contrary, the indications are that liberalization overall - and in particular those elements that relax liquidity constraints - may be associated with a fall in saving. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Suggested Citation

  • 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.
  • Handle: RePEc:tpr:restat:v:82:y:2000:i:2:p:239-263
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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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