IDEAS home Printed from https://ideas.repec.org/a/sae/soueco/v10y2009i1p127-156.html
   My bibliography  Save this article

Financial Liberalization and Performance in Sri Lanka

Author

Listed:
  • Ramesh Chandra Paudel

    (Ramesh Chandra Paudel, School of Economics, University of Wollongong, NSW 2522, Australia.)

  • Kankesu Jayanthakumaran

    (Kankesu Jayanthakumaran, School of Economics, University of Wollongong, NSW 2522, Australia, Email: kankesu@uow.edu.au)

Abstract

From the 1950s to the early 1970s, Sri Lankan governments pursued controls on the financial sector and have further reduced controls since 1977. This article links those financial sector reforms (falling controls) and the financial sector performance of Sri Lanka by testing hypotheses estimating cointegration with the ordinary least square (OLS)-based auto regressive distributed lag (ARDL) approach. Results show limited support for the liberalization and efficiency hypotheses that falling controls are associated with widening the financial sector and motivating investments. Results provide no support for the hypotheses that falling control is associated with deepening and improving the financial sector.

Suggested Citation

  • Ramesh Chandra Paudel & Kankesu Jayanthakumaran, 2009. "Financial Liberalization and Performance in Sri Lanka," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 10(1), pages 127-156, January.
    • Handle: RePEc:sae:soueco:v:10:y:2009:i:1:p:127-156
    DOI: 10.1177/139156140901000106
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/139156140901000106
    Download Restriction: no
    File URL: https://libkey.io/10.1177/139156140901000106?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Carmen M. Reinhart & Ioannis Tokatlidis, 2003. "Financial Liberalisation: The African Experience," Journal of African Economies, Centre for the Study of African Economies, vol. 12(Supplemen), pages 53-88, September.
    2. M. Hashem Pesaran & Ron P. Smith, 1998. "Structural Analysis of Cointegrating VARs," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 471-505, December.
    3. C. E. Weller, 2001. "Financial Crises After Financial Liberalisation: Exceptional Circumstances or Structural Weakness?," Journal of Development Studies, Taylor & Francis Journals, vol. 38(1), pages 98-127.
    4. Ravallion, Martin & Jayasuriya, Sisira, 1988. "Liberalization and inequality in Sri Lanka : A comment," Journal of Development Economics, Elsevier, vol. 28(2), pages 247-255, March.
    5. Bayoumi, Tamim, 1993. "Financial Deregulation and Household Saving," Economic Journal, Royal Economic Society, vol. 103(421), pages 1432-1443, November.
    6. R McKinnon, 1991. "Financial Control in the Transition to a Market Economy," CEP Discussion Papers dp0040, Centre for Economic Performance, LSE.
    7. Oriana Bandiera & Gerard Caprio & Patrick Honohan & Fabio Schiantarelli, 2000. "Does Financial Reform Raise or Reduce Saving?," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 239-263, May.
    8. Kaminsky, Graciela Laura & Schmukler, Sergio L., 2002. "Short-run pain, long-run gain : the effects of financial liberalization," Policy Research Working Paper Series 2912, The World Bank.
    9. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    10. Shrestha, M.B. & Chowdhury, k., 2006. "Financial Liberalization Index for Nepal," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 3(1), pages 41-54.
    11. M. Hashem Pesaran & Ron P. Smith, 1998. "Structural Analysis of Cointegrating VARs," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 471-505, December.
    12. Mesa-Lago, Carmelo, 1997. "Social welfare reform in the context of economic-political liberalization: Latin American cases," World Development, Elsevier, vol. 25(4), pages 497-517, January.
    13. Wilbert O. Bascom, 1994. "The Economics of Financial Reform in Developing Countries," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-23372-4, December.
    14. Battle, Ann Marie, 1997. "Welfare effects of liberalization reforms with distortions in financial and labor markets," Journal of Development Economics, Elsevier, vol. 52(2), pages 279-294, April.
    15. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    16. Dow, Sheila C, 1996. "Why the Banking System Should Be Regulated," Economic Journal, Royal Economic Society, vol. 106(436), pages 698-707, May.
    17. Daitoh, Ichiroh, 2003. "Financial liberalization, urban unemployment and welfare: some implications of the artificial low interest rate and the high wage rate policies in LDCs," Journal of Development Economics, Elsevier, vol. 72(1), pages 163-179, October.
    18. Wojciech W. Charemza & Derek F. Deadman, 1992. "New Directions In Econometric Practice," Books, Edward Elgar Publishing, number 84, March.
    19. Ghatak, Subrata, 1997. "Financial Liberalization: The Case of Sri Lanka," Empirical Economics, Springer, vol. 22(1), pages 117-129.
    20. Stern, Nicholas, 1989. "The Economics of Development: A Survey," Economic Journal, Royal Economic Society, vol. 99(397), pages 597-685, September.
    21. Mohsen Bahmani‐Oskooee & A. B. M. Nasir, 2004. "ARDL Approach to Test the Productivity Bias Hypothesis," Review of Development Economics, Wiley Blackwell, vol. 8(3), pages 483-488, August.
    22. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ramesh Chandra Paudel & Tara Prasad Bhusal, 2021. "Role of Workers Remittances in Export Performance of Nepal: Gravity Modelling Approach," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 33(1-2), pages 1-13, October.
    2. Ramesh C. Paudel & Chakra Pani Acharya, 2022. "Cooperatives and economic growth in a developing country: The case of Nepal," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 93(3), pages 797-815, September.
    3. Tulus Suryanto & Darul Dimasqy & Reza Ronaldo & Mahjus Ekananda & Teuku Heru Dinata & Indra Tumbelaka, 2020. "The Influence of Liberalization on Innovation, Performance, and Competition Level of Insurance Industry in Indonesia," Sustainability, MDPI, vol. 12(24), pages 1-25, December.
    4. Rohan Byanjankar & Mira Sakha, 2021. "Role of Remittances on Rural Poverty in Nepal-Evidence from Cross-Section Data," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 33(1-2), pages 45-72, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sulaiman, Saidu & Masih, Mansur, 2017. "Is liberalizing finance the game in town for Nigeria ?," MPRA Paper 95569, University Library of Munich, Germany.
    2. Shrestha, Min B. & Chowdhury, Khorshed, 2005. "ARDL Modelling Approach to Testing the Financial Liberalisation Hypothesis," Economics Working Papers wp05-15, School of Economics, University of Wollongong, NSW, Australia.
    3. Min Shrestha & Khorshed Chowdhury, 2007. "Testing financial liberalization hypothesis with ARDL modelling approach," Applied Financial Economics, Taylor & Francis Journals, vol. 17(18), pages 1529-1540.
    4. Min B. SHRESTHA & Khorshed CHOWDHURY, 2007. "Impact of Financial Liberalization on Welfare: Evidence from Nepal," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 7(1).
    5. Jalil, Abdul & Wahid, Abu N. M. & Shahbaz, Muhammad, 2010. "Financial Development and Growth: A Positive, Monotonic Relationship? Empirical Evidences from South Africa," MPRA Paper 27668, University Library of Munich, Germany.
    6. Brittle, Shane, 2009. "Ricardian Equivalence and the Efficacy of Fiscal Policy in Australia," Economics Working Papers wp09-10, School of Economics, University of Wollongong, NSW, Australia.
    7. Shahbaz, Muhammad & Lean, Hooi Hooi, 2012. "Does financial development increase energy consumption? The role of industrialization and urbanization in Tunisia," Energy Policy, Elsevier, vol. 40(C), pages 473-479.
    8. Amarjit Singh Sidhu & Neha Verma, 2017. "Unveiling the Factors Affecting Profitability of Reinsurance Companies," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 42(3), pages 190-204, August.
    9. Chen, George S. & Yao, Yao & Malizard, Julien, 2017. "Does foreign direct investment crowd in or crowd out private domestic investment in China? The effect of entry mode," Economic Modelling, Elsevier, vol. 61(C), pages 409-419.
    10. Chen, Ping-Yu & Chen, Bo-Yu & Tsai, Pei-Hui & Chen, Chi-Chung, 2015. "Evaluating the impacts of a carbon tax on imported forest products—evidence from Taiwan," Forest Policy and Economics, Elsevier, vol. 50(C), pages 45-52.
    11. Rıza BAYRAK & Halim TATLI, 2016. "Short and long term analysis of some factors effecting youth unemployment in Turkey," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(608), A), pages 229-242, Autumn.
    12. Samargandi, Nahla & Fidrmuc, Jan & Ghosh, Sugata, 2014. "Financial development and economic growth in an oil-rich economy: The case of Saudi Arabia," Economic Modelling, Elsevier, vol. 43(C), pages 267-278.
    13. Eftychia Nikolaidou, 2016. "The role of military expenditure and arms imports in the Greek debt crisis," Economics of Peace and Security Journal, EPS Publishing, vol. 11(1), pages 18-27, April.
    14. Ndanshau, Michael O. A. & Kilindo, Ali A. L., 2012. "Interest Rates and Financial Savings in Tanzania: 1967 - 2010," MPRA Paper 44387, University Library of Munich, Germany, revised Jan 2013.
    15. Rıza BAYRAK & Halim TATLI, 2016. "Short and long term analysis of some factors effecting youth unemployment in Turkey," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(608), A), pages 229-242, Autumn.
    16. Kouretas, Georgios P. & Yannopoulos, Andreas, 2006. "Dynamic modelling of trade union behaviour: Evidence from the Greek manufacturing sector," Economic Modelling, Elsevier, vol. 23(2), pages 316-338, March.
    17. Adebiyi, Michael Adebayo, 2007. "An Evaluation of Foreign Exchange Intervention and Monetary Aggregates in Nigeria (1986- 2003)," MPRA Paper 3817, University Library of Munich, Germany.
    18. Chowdhury, Khorshed, 2007. "Balassa-Samuelson Effect Approaching Fifty Years: Is it Retiring Early in Australia?," Economics Working Papers wp07-11, School of Economics, University of Wollongong, NSW, Australia.
    19. Sheilla Nyasha & Nicholas M. Odhiambo, 2015. "The Impact of Banks and Stock Market Development on Economic Growth in South Africa: an ARDL-bounds Testing Approach," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 9(1), March.
    20. Eftychia Nikolaidou & Sofoklis Vogiazas, 2014. "Credit Risk Determinants for the Bulgarian Banking System," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 20(1), pages 87-102, February.

    More about this item

    Keywords

    JEL: C32; JEL: C38; Sri Lanka; Financial Sector; Liberalization; ARDL Approach;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:soueco:v:10:y:2009:i:1:p:127-156. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.ips.lk/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.