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Financial Institutions' Expertise and Growth Effects of Financial Liberalisation

This paper analyses the real effects of financial development subsequent to financial liberalisation in an economy with risk averse savers and learning by lending. Transition from full financial repression to full financial liberalisation might initially slow down the growth process or even induce a recession, whenever the initial level of valuable investments known by the financial instutions (informed capital ) is suficiently scanty. However, lending activity leads to accumulation of information (learning by lending) regarding valuable investments. This way, as intermediaries become experts, the allocative efficiency they are able to guarantee ameliorates so that, in the long run, the effects of financial liberalisation are eventually positive

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Paper provided by Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia in its series Working Paper CRENoS with number 200105.

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Date of creation: 2001
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Handle: RePEc:cns:cnscwp:200105
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  1. De Gregorio, Jose & Guidotti, Pablo E., 1995. "Financial development and economic growth," World Development, Elsevier, vol. 23(3), pages 433-448, March.
  2. repec:cup:macdyn:v:5:y:2001:i:3:p:413-33 is not listed on IDEAS
  3. Saint-Paul, Gilles, 1992. "Technological choice, financial markets and economic development," European Economic Review, Elsevier, vol. 36(4), pages 763-781, May.
  4. Maurice Obstfeld, 1992. "Risk-Taking, Global Diversification, and Growth," NBER Working Papers 4093, National Bureau of Economic Research, Inc.
  5. Acemoglu, Daron & Zilibotti, Fabrizio, 1997. "Was Prometheus Unbound by Chance? Risk, Diversification, and Growth," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 709-51, August.
  6. Greenwood, Jeremy & Jovanovic, Boyan, 1988. "Financial Development, Growth, And The Distribution Of Income," Working Papers 88-12, C.V. Starr Center for Applied Economics, New York University.
  7. Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April.
  8. Michael B. Devereux & Gregor W. Smith, 1991. "International Risk Sharing and Economic Growth," Working Papers 829, Queen's University, Department of Economics.
  9. Demetriades, Panicos O. & Hussein, Khaled A., 1996. "Does financial development cause economic growth? Time-series evidence from 16 countries," Journal of Development Economics, Elsevier, vol. 51(2), pages 387-411, December.
  10. Jappelli, Tullio & Pagano, Marco, 1992. "Saving, Growth and Liquidity Constraints," CEPR Discussion Papers 662, C.E.P.R. Discussion Papers.
  11. Roubini, Nouriel & Sala-i-Martin, Xavier, 1995. "A growth model of inflation, tax evasion, and financial repression," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 275-301, April.
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  13. Fry, Maxwell J, 1989. "Financial Development: Theories and Recent Experience," Oxford Review of Economic Policy, Oxford University Press, vol. 5(4), pages 13-28, Winter.
  14. Raghuram G. Rajan & Luigi Zingales, . "Financial Dependence and Growth," CRSP working papers 344, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  15. Stiglitz, Joseph E, 1989. "Financial Markets and Development," Oxford Review of Economic Policy, Oxford University Press, vol. 5(4), pages 55-68, Winter.
  16. Fry, Maxwell J, 1997. "In Favour of Financial Liberalisation," Economic Journal, Royal Economic Society, vol. 107(442), pages 754-70, May.
  17. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  18. Delano Villanueva & Abbas Mirakhor, 1990. "Strategies for Financial Reforms: Interest Rate Policies, Stabilization, and Bank Supervision in Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 37(3), pages 509-536, September.
  19. Cho, Yoon Je, 1989. "Finance and Development: The Korean Approach," Oxford Review of Economic Policy, Oxford University Press, vol. 5(4), pages 88-102, Winter.
  20. Bencivenga, Valerie R & Smith, Bruce D, 1991. "Financial Intermediation and Endogenous Growth," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 195-209, April.
  21. Lee, Jaewoo, 1996. "Financial development by learning," Journal of Development Economics, Elsevier, vol. 50(1), pages 147-164, June.
  22. Vittas, Dimitri, 1991. "The impact of regulation on financial intermediation," Policy Research Working Paper Series 746, The World Bank.
  23. Aubhik Khan, 1999. "Financial development and economic growth," Working Papers 99-11, Federal Reserve Bank of Philadelphia.
  24. Jaramillo, Fidel & Schiantarelli, Fabio & Weiss, Andrew, 1993. "The effect of financial liberalization on allocation of credit : panel data evidence for Ecuador," Policy Research Working Paper Series 1092, The World Bank.
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