Financial Liberalization, Financial Development, and Macroeconomic Risks in an Open Economy

2020 ◽  
Author(s):  
Jingxian Hu
Keyword(s):  
Financial Development ◽  
Open Economy ◽  
Financial Liberalization ◽  
Macroeconomic Risks

The relationship between financial development and effectiveness of monetary policy: new evidence from ASEAN-3 countries

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Zulkefly Abdul Karim ◽  
Danie Eirieswanty Kamal Basa ◽  
Bakri Abdul Karim
Keyword(s):  
Monetary Policy ◽  
Money Supply ◽  
Financial Development ◽  
Open Economy ◽  
Banking Sector ◽  
Financial System ◽  
The Philippines ◽  
Output Growth ◽  
Content Type ◽  
The Relationship

Purpose This paper aims to investigate the relationship between financial development (FD) and monetary policy effectiveness (MPE) on output and inflation in ASEAN-3 countries (Singapore, Malaysia and the Philippines). Design/methodology/approach This study uses an open economy structural vector autoregressive model to generate MPE. Then, an autoregressive distributed lagged (ARDL) model is used to analyze the effect of FD on MPE across countries. Findings The findings revealed that FD plays a different role in MPE across countries. In Malaysia, a more developed financial system tends to reduce the MPE on output, whereas in Singapore, results show that the more developed financial system (stock market capitalization) tends to increase MPE on output. However, in the Philippines, the main results show that the effect of FD (liquid liabilities) upon MPE on output is depending on the policy variable (interest rates or money supply). Originality/value This paper fills this gap by providing the first study of ASEAN-3 countries in examining how effective is a monetary policy in response to the development of the financial market across the country. Second, this paper considers two FD indicators, namely, the banking sector and capital market development in investigating its effect on MPE on output and inflation. Third, the authors construct the MPE in each country using a structural (identified) VAR model by aggregating the response of output growth and inflation rate on monetary policy changes (interest rate and money supply) using impulse–response function. Regarding this, the results of this study provide new empirical evidence and insight into the long debate on the relationship between FD and the MPE.

Globalization, Financial Development and Income Inequality

2015 ◽  
pp. 349-374
Author(s):  
Görkem Bahtiyar
Keyword(s):  
Financial Development ◽  
Capital Mobility ◽  
Direct Investment ◽  
Financial Liberalization ◽  
Division Of Labour ◽  
The Great Recession ◽  
Institutional Structures ◽  
The World ◽  
Changing Patterns ◽  
Portfolio Investments

Globalization, as a concept has three main aspects: economic, political and social. Economic globalization in general, refers to the liberalization of trade between countries and increasing mobility of factors. In the case of factor mobility, capital flows come to the fore. Increasing capital mobility in the form of foreign direct investment and more importantly, portfolio investments, apart from causing a new international division of labour among regions of the world, also have important effects on the financialization phenomenon, changes in income distribution and changing institutional structures. Developments in information-telecommunication technologies, changing patterns in intellectual sphere, as well as in political and economic institutions especially after the mid-1970s play a role in the rise of financial globalization. Financial liberalization has been celebrated since McKinnon (1973)-Shaw (1973), but the Great Recession sparked doubts on the ability of unchecked financial development on providing a solid and fair foundation of economic development.

scholarly journals Welfare and Distributional Impacts of Financial Liberalization in an Open Economy: Lessons from a Multi-Sectoral Dynamic CGE Model for Nepal

2016 ◽  
Vol 10 (1) ◽  
pp. 181 ◽  
Author(s):  
Keshab Bhattarai
Keyword(s):  
Open Economy ◽  
Financial Liberalization ◽  
Cge Model ◽  
Allocation Of Resources ◽  
Rates Of Return ◽  
Rural Labor ◽  
Urban Households ◽  
Rural And Urban ◽  
Distribution Of Income ◽  
Distributional Impacts

By equalizing rates of return across sectors, financial liberalization improves efficiency and equalizes the distribution of income. Efficiency gained in the allocation of resources increases capital usage more in previously heavily repressed sectors such as agriculture and textile, allowing up to a 19 percent expansion in production and employment. The savings and investment responses, degree of factor substitutions, are higher in the complete liberalization than in partial or piecemeal liberalization. Income, consumption, utility and overall welfare of rural and urban households increase. Liberalization is not effective if savings are used in accumulations of unproductive assets i.e. gold, jewellery, urban land, and foreign exchange. Financial liberalization improves the distribution of income by raising the wage rate of rural labor than for urban labor as rural labour-intensive sectors invest more with increased access to financial institutions and demand more labor to complement additional capital employed in these sectors.

scholarly journals Financial Liberalization or Financial Development? Tests Using Delphi-Based Index Ofliberalization

2009 ◽  
Author(s):  
Nicolaas Gronewold ◽  
Jiangang Peng ◽  
Guanzheng Li ◽  
Xiangmei Fan
Keyword(s):  
Financial Development ◽  
Delphi Method ◽  
Financial Liberalization ◽  
Financial Reform ◽  
Financial Assets ◽  
Policy Perspective ◽  
Financial Liberalisation ◽  
Components Analysis ◽  
Empirical Growth ◽  
Finance Growth Nexus

Most empirical analysis of the finance-growth nexus has used measures of financial development such as the ratio or monetary of financial assets to GDP to measure financial development. We argue that from a policy perspective measures of financial liberalisation or reform are of greater interest and, besides, are less likely to be beset by endogeneity problems which have dogged the empirical growth literature. We develop such a measure by combining the ‘Delphi’ method and principal components analysis to construct an index of financial liberalisation for China. Much of China’s financial development has been policy-driven and we could expect to find a distinct difference, at least in timing, between measures of financial reform and financial development. We compare our financial liberalisation index to a number of standard measures of financial development and find that there is pervasive evidence that financial liberalisation Granger-causes financial development but not vice versa.  

Financial Development and Output: A Synthesis of Time Series Cointegration and Causality Tests for Bangladesh

2016 ◽  
Vol 5 (2) ◽  
pp. 113-132 ◽  
Author(s):  
Anupam Das ◽  
Syeed Khan
Keyword(s):  
Developing Countries ◽  
Financial Development ◽  
Financial Liberalization ◽  
Jel Classification ◽  
Output Growth ◽  
Empirical Literature ◽  
Financial Policies ◽  
Data Set ◽  
Vector Error Correction ◽  
Causality Tests

Since the 1980s, financial liberalization in developing countries has been an important policy prescription of many international organizations including the World Bank (WB) and International Monetary Fund (IMF). It is argued that the liberalization of the financial sector would allocate productive resources in the most efficient way and increase economic growth. However, the relationship between financial liberalization and output is not clear in the existing empirical literature. Applying the cointegration and Granger causality tests within the vector error correction model (VECM) to a data set from 1974 to 2013, our results suggest that output per capita Granger causes financial development, and vice versa. Hence, we find the evidence of bidirectional causality between financial development and GDP in Bangladesh. These results will help policymakers design financial policies in Bangladesh and other developing countries, which face the dilemma of financial liberalization while maintaining a high and stable output growth. JEL Classification: E44, O40, C22

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