Welfare Gains from Financial Liberalization

IMF Working Paper No. 07/154

67 Pages Posted: 27 Jan 2010

See all articles by Robert M. Townsend

Robert M. Townsend

MIT - Department of Economics

Kenichi Ueda

University of Tokyo - Faculty of Economics

Date Written: July 1, 2007

Abstract

Financial liberalization has been a controversial issue, as empirical evidence for growth enhancing effects is mixed. Here, we find sizable welfare gains from liberalization (cost to repression), though the gain in economic growth is ambiguous. We take the view that financial liberalization is a government policy that alters the path of financial deepening, while financial deepening is endogenously chosen by agents given a policy and occurs in transition towards a distant steady state. This history-dependent view necessitates the use of simulation analysis based on a growth model. Our application is a specific episode: Thailand from 1976 to 1996.

Keywords: financial liberalization, welfare gain, financial deepening, economic growth

JEL Classification: G28, O16, O17

Suggested Citation

Townsend, Robert M. and Ueda, Kenichi, Welfare Gains from Financial Liberalization (July 1, 2007). IMF Working Paper No. 07/154. Available at SSRN: https://ssrn.com/abstract=1542926 or http://dx.doi.org/10.2139/ssrn.1542926

Robert M. Townsend

MIT - Department of Economics ( email )

Bldg. E52-252c
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Cambridge, MA 02142
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617-452-3722 (Phone)
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Kenichi Ueda (Contact Author)

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

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