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Using a 2-Sector Growth Model to Assess the Macroeconomic Consequences of Financial Liberalization

Author

Listed:
  • Yuan K. Chou
  • Martin S. Chin

Abstract

This paper uses the economic growth model with a financial sector developed in Chou and Chin (2001) to examine the conditions under which financial liberalization is desirable from the perspective of a policymaker who is concerned about the well-being of domestic households. Financial liberalization raises the rate of financial innovations and the efficiency of financial intermediation, but typically causes large foreign firms from leading-edge countries to displace smaller and less efficient domestic firms. Profits are repatriated abroad instead of accruing to domestic households as dividends. This trade-off is further complicated when we allow financial firms to hire talented foreigners once liberalization has taken place.

Suggested Citation

  • Yuan K. Chou & Martin S. Chin, 2002. "Using a 2-Sector Growth Model to Assess the Macroeconomic Consequences of Financial Liberalization," Department of Economics - Working Papers Series 835, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:835
    as

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    File URL: http://www.economics.unimelb.edu.au/downloads/wpapers-02/835.pdf
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    References listed on IDEAS

    as
    1. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    2. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders and Product Cycles," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 557-586.
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    More about this item

    Keywords

    Economic Growth; Finance; Financial Liberalization;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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