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Financial liberalization and aggregate consumption: the evidence from Taiwan

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  • Vei-Lin Chan
  • Sheng-Cheng Hu

Abstract

This paper considers the effect of financial liberalization on aggregate consumption, with a special focus on Taiwan, which has sustained a high savings rate and a rapid rate of economic growth under financial dualism, but has undertaken financial liberalization since the 1980s, leading to an expansion of the formal financial sector. The paper finds that, because of an active informal financial sector, consumers in Taiwan are less credit constrained than in other developing countries. However, the expansion of the formal financial sector has contributed to some relaxation of consumer credit constraints and thereby changes in the income and interest elasticities of consumption. It also has brought about a higher consumption growth rate, offsetting at least partially the positive growth effect of financial liberalization, which helps improve the efficiency in finanacial intermediation.

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  • Vei-Lin Chan & Sheng-Cheng Hu, 1997. "Financial liberalization and aggregate consumption: the evidence from Taiwan," Applied Economics, Taylor & Francis Journals, vol. 29(11), pages 1525-1535.
    • Handle: RePEc:taf:applec:v:29:y:1997:i:11:p:1525-1535
    DOI: 10.1080/000368497326354
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    Cited by:

    1. Chung-Shu Wu & Sheng-Cheng Hu, 2000. "Interest Rates, Credit Rationing, and Banking Deregulation in Taiwan," NBER Chapters, in: Deregulation and Interdependence in the Asia-Pacific Region, pages 255-276, National Bureau of Economic Research, Inc.
    2. Yih‐Luan Chyi & Yu‐Lun Liu, 2007. "Income Uncertainty and Wealth Accumulation: How Precautionary are Taiwanese Households?," Asian Economic Journal, East Asian Economic Association, vol. 21(3), pages 301-319, September.
    3. Fu-Sheng Hung, 2009. "Explaining the nonlinear effects of financial development on economic growth," Journal of Economics, Springer, vol. 97(1), pages 41-65, May.
    4. Tomas Havranek & Anna Sokolova, 2016. "Do Consumers Really Follow a Rule of Thumb? Three Thousand Estimates from 130 Studies Say "Probably Not"," Working Papers 2016/08, Czech National Bank.
    5. Mamoon, Dawood & Nicholas, Howard, 2017. "Financial Liberalisation and Economic Growth: A Preliminary Analysis," MPRA Paper 82976, University Library of Munich, Germany.

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