Welfare Gains from Financial Liberalization

45 Pages Posted: 10 Aug 2010

See all articles by Robert M. Townsend

Robert M. Townsend

Massachusetts Institute of Technology (MIT)

Kenichi Ueda

University of Tokyo - Faculty of Economics

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), although 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, whereas financial deepening is endogenously chosen by agents given a policy and occurs in transition toward 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.

Suggested Citation

Townsend, Robert M. and Ueda, Kenichi, Welfare Gains from Financial Liberalization. International Economic Review, Vol. 51, Issue 3, pp. 553-597, August 2010. Available at SSRN: https://ssrn.com/abstract=1654630 or http://dx.doi.org/10.1111/j.1468-2354.2010.00593.x

Robert M. Townsend

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Kenichi Ueda

University of Tokyo - Faculty of Economics ( email )

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

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