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Financial Liberalization in a Small Open Economy

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  • Jürgen von Hagen
  • Haiping Zhang

Abstract

We analyze the long-run and short-run implications of financial liberalization in a small open economy. Our main results are as follows. First, whether financial deregulation in one sector can improve production efficiency may depend on financial regulation in other sectors. Second, financial liberalization may have opposite welfare implications to domestic agents with different productivity in the long run. Third, although some domestic agents lose in the long run, they benefit from financial liberalization during the transitional process of deregulation. Finally, a gradual implementation helps achieve a smooth transition.

Suggested Citation

  • Jürgen von Hagen & Haiping Zhang, 2006. "Financial Liberalization in a Small Open Economy," CESifo Working Paper Series 1771, CESifo.
    • Handle: RePEc:ces:ceswps:_1771
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    References listed on IDEAS

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    Cited by:

    1. Heijdra, Ben J. & Ligthart, Jenny E., 2007. "Fiscal policy, monopolistic competition, and finite lives," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 325-359, January.
    2. Jürgen Von Hagen & Haiping Zhang, 2008. "A Welfare Analysis of Capital Account Liberalization," Review of International Economics, Wiley Blackwell, vol. 16(3), pages 576-590, August.
    3. Kerstin Gerling, 2008. "The Real Consequences of Financial Market Integration when Countries Are Heterogeneous," Working Papers 141, Oesterreichische Nationalbank (Austrian Central Bank).
    4. Pierre-Richard Agénor, 2015. "L’intégration financière internationale : Théories, évidences, et leçons des expériences récentes [International financial integration: Theory, evidence and lessons from recent experiences]," Research papers & Policy papers 1508, Policy Center for the New South.
    5. von Hagen, Jürgen & Zhang, Haiping, 2008. "Financial frictions, capital reallocation, and aggregate fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 32(3), pages 978-999, March.
    6. Jurgen von Hageny & Haiping Zhang, 2007. "A Welfare Analysis of Capital Liberalization," Macroeconomics Working Papers 22489, East Asian Bureau of Economic Research.
    7. repec:onb:oenbwp:y::i:141:b:1 is not listed on IDEAS
    8. Haiping Zhang & Jurgen von Hagen, 2007. "Financial Development and International Capital Flows," Working Papers 16-2007, Singapore Management University, School of Economics.

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    Keywords

    financial frictions; financial liberalization; foreign borrowing; macroeconomic fluctuations; overshooting;
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