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Welfare Gains from Financial Liberalization

  • Kenichi Ueda
  • Robert M. Townsend

Financial liberalization has been a controversial issue as there is little empirical evidence for its positive effects on economic growth. However, we find sizable welfare gains, 1 to 28 percent of permanent consumption though, consistent with the literature, the gain in the economic growth is ambiguous, -0.2 to 0.7 percent. We apply a canonical growth model with endogenous financial deepening to Thailand, 1976-96. As effective bank transaction costs decline, more people take advantage of financial services. We estimate the gains by comparing model simulations under the historical episode of financial liberalization to those under a hypothetical continuation of financial repression.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/154.

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Length: 40
Date of creation: 01 Jul 2007
Handle: RePEc:imf:imfwpa:07/154
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