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Financial Liberalization and Urbanization

Author

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  • 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
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    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 - Economic Systems - - Socialist Systems 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

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