IDEAS home Printed from https://ideas.repec.org/p/hhs/hascer/2015-035.html
   My bibliography  Save this paper

Financial Liberalization and Urbanization

Author

Listed:
  • Johansson, Anders C.

    (Stockholm China Economic Research Institute)

  • Wang, Xun

    (Stockholm China Economic Research Institute)

Abstract

This paper analyzes the relationship between financial liberalization and urbanization. We conjecture that liberalizing financial policies enables the process of economic structural change and that this change results in an increased demand for labor in the predominantly urban service industry, Using different identification strategies and a large country sample, we find that financial liberalization is positively associated with urbanization. When controlling for the robustness of determinants as well as potential endogeneity, financial liberalization is still significantly and positively related to urbanization. We also identify the individual financial policies that are most strongly associated with urbanization, namely interest rate liberalization, strengthening of competition in the banking sector, credit control liberalization, and a decrease in the entry barriers to the domestic financial industry. Our findings have implications for countries such as China, where policymakers hope that urbanization will be a key driver of future economic growth.

Suggested Citation

  • Johansson, Anders C. & Wang, Xun, 2015. "Financial Liberalization and Urbanization," Stockholm School of Economics Asia Working Paper Series 2015-35, Stockholm School of Economics, Stockholm China Economic Research Institute.
  • Handle: RePEc:hhs:hascer:2015-035
    as

    Download full text from publisher

    File URL: http://swopec.hhs.se/hascer/papers/hascer2015-035.pdf
    File Function: Complete Rendering
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Yiping Huang & Xun Wang, 2011. "Does Financial Repression Inhibit or Facilitate Economic Growth? A Case Study of Chinese Reform Experience," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 73, pages 833-855, December.
    2. Pandey, S M, 1977. "Nature and Determinants of Urbanization in a Developing Economy: The Case of India," Economic Development and Cultural Change, University of Chicago Press, vol. 25(2), pages 265-278, January.
    3. Magnus, Jan R. & Powell, Owen & Prüfer, Patricia, 2010. "A comparison of two model averaging techniques with an application to growth empirics," Journal of Econometrics, Elsevier, vol. 154(2), pages 139-153, February.
    4. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    5. Romain Wacziarg & Karen Horn Welch, 2008. "Trade Liberalization and Growth: New Evidence," The World Bank Economic Review, World Bank Group, vol. 22(2), pages 187-231, June.
    6. Davis, James C. & Henderson, J. Vernon, 2003. "Evidence on the political economy of the urbanization process," Journal of Urban Economics, Elsevier, vol. 53(1), pages 98-125, January.
    7. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084, Central Bank of Chile.
    8. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
    9. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2011. "Financial Openness and Productivity," World Development, Elsevier, vol. 39(1), pages 1-19, January.
    10. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
    11. René M. Stulz, 2007. "The Limits of Financial Globalization," Journal of Applied Corporate Finance, Morgan Stanley, vol. 19(1), pages 8-15, January.
    12. Bumann, Silke & Hermes, Niels & Lensink, Robert, 2013. "Financial liberalization and economic growth: A meta-analysis," Journal of International Money and Finance, Elsevier, vol. 33(C), pages 255-281.
    13. Suzanne McCoskey & Chihwa Kao, 1998. "A Panel Data Investigation of the Relationship Between Urbanization and Growth," Urban/Regional 9805004, University Library of Munich, Germany.
    14. Abdul Abiad & Enrica Detragiache & Thierry Tressel, 2010. "A New Database of Financial Reforms," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 281-302, June.
    15. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    16. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2005. "Does financial liberalization spur growth?," Journal of Financial Economics, Elsevier, vol. 77(1), pages 3-55, July.
    17. Moomaw, Ronald L. & Shatter, Ali M., 1996. "Urbanization and Economic Development: A Bias toward Large Cities?," Journal of Urban Economics, Elsevier, vol. 40(1), pages 13-37, July.
    18. Guy Michaels & Ferdinand Rauch & Stephen J. Redding, 2012. "Urbanization and Structural Transformation," The Quarterly Journal of Economics, Oxford University Press, vol. 127(2), pages 535-586.
    19. Francesca Carrieri & Ines Chaieb & Vihang Errunza, 2013. "Do Implicit Barriers Matter for Globalization?," Review of Financial Studies, Society for Financial Studies, vol. 26(7), pages 1694-1739.
    20. Asli Demeirgüç-Kunt & Ross Levine (ed.), 0. "Finance and Growth," Books, Edward Elgar Publishing, number 17119.
    21. Rioja, Felix & Valev, Neven, 2004. "Does one size fit all?: a reexamination of the finance and growth relationship," Journal of Development Economics, Elsevier, vol. 74(2), pages 429-447, August.
    22. Roubini, Nouriel & Sala-i-Martin, Xavier, 1992. "Financial repression and economic growth," Journal of Development Economics, Elsevier, vol. 39(1), pages 5-30, July.
    23. Ross Levine, 2001. "International Financial Liberalization and Economic Growth," Review of International Economics, Wiley Blackwell, vol. 9(4), pages 688-702, November.
    24. Chang, Gene Hsin & Brada, Josef C., 2006. "The paradox of China's growing under-urbanization," Economic Systems, Elsevier, vol. 30(1), pages 24-40, March.
    25. Johansson, Anders C. & Wang, Xun, 2011. "Financial Repression And Structural Imbalances," Working Paper Series 2011-19, Stockholm School of Economics, China Economic Research Center.
    26. Henderson, Vernon, 2003. "The Urbanization Process and Economic Growth: The So-What Question," Journal of Economic Growth, Springer, vol. 8(1), pages 47-71, March.
    27. Ang, James B. & McKibbin, Warwick J., 2007. "Financial liberalization, financial sector development and growth: Evidence from Malaysia," Journal of Development Economics, Elsevier, vol. 84(1), pages 215-233, September.
    28. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    29. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
    30. Duncan Black & Vernon Henderson, 1999. "A Theory of Urban Growth," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 252-284, April.
    31. Ms. Enrica Detragiache & Asli Demirgüç-Kunt, 1998. "Financial Liberalization and Financial Fragility," IMF Working Papers 1998/083, International Monetary Fund.
    32. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
    33. Hofmann, Anett & Wan, Guanghua, 2013. "Determinants of Urbanization," ADB Economics Working Paper Series 355, Asian Development Bank.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Johansson, Anders C. & Wang, Xun, 2014. "Financial sector policies and income inequality," China Economic Review, Elsevier, vol. 31(C), pages 367-378.
    2. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    3. Samargandi, Nahla & Fidrmuc, Jan & Ghosh, Sugata, 2015. "Is the Relationship Between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle-Income Countries," World Development, Elsevier, vol. 68(C), pages 66-81.
    4. Zeeshan Atiq & M. Emranul Haque, 2015. "Financial Development and Economic Growth: The Role of Financial Liberalization," Centre for Growth and Business Cycle Research Discussion Paper Series 201, Economics, The University of Manchester.
    5. Gehringer, Agnieszka, 2013. "Financial liberalization, financial development and productivity growth: An overview," Economics Discussion Papers 2013-46, Kiel Institute for the World Economy (IfW Kiel).
    6. Thorsten Beck, 2009. "The Econometrics of Finance and Growth," Palgrave Macmillan Books, in: Terence C. Mills & Kerry Patterson (ed.), Palgrave Handbook of Econometrics, chapter 25, pages 1180-1209, Palgrave Macmillan.
    7. W.N.W Azman‐Saini & Peter Smith, 2011. "Finance And Growth: New Evidence On The Role Of Insurance," South African Journal of Economics, Economic Society of South Africa, vol. 79(2), pages 111-127, June.
    8. Vighneswara Swamy & Munusamy Dharani, 2021. "Thresholds in finance–growth nexus: Evidence from G‐7 economies," Australian Economic Papers, Wiley Blackwell, vol. 60(1), pages 1-40, March.
    9. Seven, Ünal & Yetkiner, Hakan, 2016. "Financial intermediation and economic growth: Does income matter?," Economic Systems, Elsevier, vol. 40(1), pages 39-58.
    10. Beck, Thorsten & Chen, Tao & Lin, Chen & Song, Frank M., 2016. "Financial innovation: The bright and the dark sides," Journal of Banking & Finance, Elsevier, vol. 72(C), pages 28-51.
    11. Vighneswara Swamy & Munusamy Dharani, 2020. "Thresholds of financial development in the Euro area," The World Economy, Wiley Blackwell, vol. 43(6), pages 1730-1774, June.
    12. Ang, James B. & McKibbin, Warwick J., 2007. "Financial liberalization, financial sector development and growth: Evidence from Malaysia," Journal of Development Economics, Elsevier, vol. 84(1), pages 215-233, September.
    13. Vighneswara Swamy & Dharani M, 2020. "The tipping point of financial development? – evidence from OECD countries," International Economics and Economic Policy, Springer, vol. 17(1), pages 125-165, February.
    14. Zhang, Jin & Wang, Lanfang & Wang, Susheng, 2012. "Financial development and economic growth: Recent evidence from China," Journal of Comparative Economics, Elsevier, vol. 40(3), pages 393-412.
    15. Tongurai, Jittima & Vithessonthi, Chaiporn, 2018. "The impact of the banking sector on economic structure and growth," International Review of Financial Analysis, Elsevier, vol. 56(C), pages 193-207.
    16. repec:zbw:bofrdp:2010_021 is not listed on IDEAS
    17. Benfratello, Luigi & Schiantarelli, Fabio & Sembenelli, Alessandro, 2008. "Banks and innovation: Microeconometric evidence on Italian firms," Journal of Financial Economics, Elsevier, vol. 90(2), pages 197-217, November.
    18. Nasreen, Samia & Mahalik, Mantu Kumar & Shahbaz, Muhammad & Abbas, Qaisar, 2020. "How do financial globalization, institutions and economic growth impact financial sector development in European countries?," Research in International Business and Finance, Elsevier, vol. 54(C).
    19. Rioja, Felix & Valev, Neven, 2004. "Does one size fit all?: a reexamination of the finance and growth relationship," Journal of Development Economics, Elsevier, vol. 74(2), pages 429-447, August.
    20. Ketteni, Elena & Kottaridi, Constantina, 2019. "Credit market deregulation and economic growth: Further insights using a marginal integration approach," Journal of Macroeconomics, Elsevier, vol. 62(C).
    21. Johansson, Anders C. & Wang, Xun, 2012. "Financial Sector Policies, Poverty and Inequality," Working Paper Series 2012-24, Stockholm School of Economics, China Economic Research Center.

    More about this item

    Keywords

    Financial liberalization; Urbanization; Structural change;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • P25 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Urban, Rural, and Regional Economics
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:hascer:2015-035. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: NanHee Lee (email available below). General contact details of provider: https://edirc.repec.org/data/cehhsse.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.