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The Political Economy of Trade-Financial Liberalization and Financial Underdevelopment: A perspective from China

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  • Morgan, Horatio M.

Abstract

Although financial development may facilitate economic growth over the long term, financial underdevelopment remains a salient feature of even leading emerging or transition economies. In principle, openness to both international trade and finance may weaken resistance to major financial reforms; however, the apparent failure to consolidate political support for such reforms in practice is not completely understood. This paper develops a simple model of the political economy of trade-financial liberalization that offers insights into this phenomenon. When applied to China, it not only facilitates a better understanding of its approach to financial integration in the global economy and why its relatively fragile state-bank dominated financial system has persisted; but more generally, it raises the question of whether limited de facto political competition in the domestic electoral system may be a binding constraint on the quantity and quality of the policies required to foster financial development.

Suggested Citation

  • Morgan, Horatio M., 2013. "The Political Economy of Trade-Financial Liberalization and Financial Underdevelopment: A perspective from China," MPRA Paper 50031, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:50031
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    File URL: https://mpra.ub.uni-muenchen.de/50031/1/MPRA_paper_50031.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    China; Economic Growth; Financial Openness; Financial Development; Political Economy; Trade Openness.;

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P2 - Economic Systems - - Socialist Systems and Transition Economies

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