Welfare Gains from Financial Liberalization

July 1, 2007

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Format: Chicago

Kenichi Ueda, and Robert M. Townsend Welfare Gains from Financial Liberalization, (USA: International Monetary Fund, 2007) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Banking, Financial sector, Financial sector policy, Financial services, Personal income

Keywords: Cost reduction, Economic growth, Financial system, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/154
Stock No:

WPIEA2007154
ISBN:

9781451867183
ISSN:

1018-5941

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