Financial development,financial liberalization and social capital

The relationship between financial liberalization policies and financial development is controversial. The impact of these policies differs greatly across countries. In the literature, the quality of formal institutions has been identified as an important source of this heterogeneity, as countries with a weak institutional environment generally fail to benefit from financial liberalization. Using panel data covering 82 countries for the period 1973–2008, we find evidence that social capital may substitute for formal institutions as a prerequisite for effective financial liberalization policies. In particular, we find that during the post Washington-consensus period countries with a high prevailing level of social capital can ensure that financial liberalization positively influences financial development, despite the poor quality of their formal institutions.     

Costly capital reallocation and energy use

In time series data, energy use does not change much with energy price changes. However, energy use is responsive to international differences in energy prices in cross-section data across countries. In this paper we consider a model of energy use in which production takes place at individual plants and capital can be used either to directly produce output or to reduce the energy required to run the plant. We assume that reallocating capital from one use to another is costly. This turns out to be crucial for the quantitative properties of the model to be in conformity with the low short-run and high long-run elasticities of energy use seen in data.     

Financial liberalization,disaggregated capital flows and banking crisis: Evidence from developing countries

The aim of this paper is to examine whether financial liberalization has triggered banking crises in some developing countries. We focus in particular on the role of capital flows as their volatilities threat economic stability and growth. In the empirical model, based on panel logit estimation, we use the two common financial liberalization indicators (defacto and dejure) for a panel of 58 developing countries observed during the period 1984–2007. Unlike the previous studies, this paper reveals that both indicators of financial liberalization did not trigger banking crises. However, the results show that foreign debt liabilities to total liabilities and foreign direct investment liabilities to total liabilities increase the likelihood of banking crises.     

Separability and capital aggregation in sectoral models of US production

Separability plays a fundamental role in applied studies of production inasmuch as it provides for consistent aggregation and allows multi-stage estimation of models with many inputs. This paper examines whether two types of capital, structures and equipment, are weakly separable from labour and energy and materials in sectoral models of US production, and provides an assessment of the effects of maintaining capital separability. The study focuses on the elasticity of substitution as a measure of input association and associated standard errors and confidence intervals based on bootstrapping. Elasticity estimates and tests indicate that capital separability is generally inconsistent with data representing sectoral US production. Elasticity sign, however, appears robust to capital aggregation and performs especially well as an indicator of input association.     

Human capital, market imperfections, and labor reallocation in transition

In this paper, we investigate the effects of human capital and factor market imperfections on household decisions regarding labor use and reallocation in transition countries. We develop a model that accounts explicitly for heterogeneity in the supply of labor and analyze its impact on the allocation of labor. Furthermore, the effects of imperfections in the capital and labor markets on the reallocation process are modeled. Using a dataset based on a countrywide representative survey of Hungarian rural households, we estimate the effects empirically and find them to be important. Journal of Comparative Economics 32 (4) (2004) 745–774.     

Financial liberalization and the relationship-specificity of exports

We investigate the causal impact of equity market liberalizations on sectoral export performance across 91 countries (1980–1997). The increased availability of external finance has boosted trade of industries that intensively use relationship-specific inputs, and lowered exports of industries using standardized inputs.     

Financial development, liberalization and technological deepening

This paper focuses on examining the effects of financial development and liberalization on knowledge accumulation. The results consistently show that while financial development facilitates the accumulation of new ideas, the implementation of financial reform policies is negatively associated with it. The undesirable effects of financial liberalization are found to operate through the triggering of crises and volatility in the financial system. There is also evidence supporting the hypothesis that financial liberalization reallocates talent from the innovative sector to the financial system, thus retarding technological deepening. Moreover, the findings also suggest that increased R&D activity and the presence of a stronger intellectual property rights protection framework tend to have beneficial effects on knowledge accumulation.     

Financial liberalization and short-run housing price dynamics

We develop a continuous time, rational expectations, multi-cohort model of an exchange economy with housing, the purchase of which is subject to a down payment (DP) constraint. The timing of the house purchase decision is a crucial endogenous variable, and four determinants of it are identified – the housing services effect, the interest discounting effect, the consumption smoothing effect, and the rate of price increase effect. Cohort effects, and supply constraints, play crucial roles at the aggregative level. We explore in detail the effects of a discrete financial liberalization, and show that if the liberalization is not announced sufficiently far in advance, housing prices will initially overshoot the new stationary equilibrium, and vice versa. Particular attention is paid to the possibility that for a subset of cohorts along the transition path the DP constraint will not bind. An interesting ‘Prisoners’ Dilemma’ is also identified, and policy implications discussedJEL Classification Numbers: E3, R21Valuable comments and suggestions from Phillip Brock, Ho Kong-Weng, Liu Haoming, David McKenzie, David Miles, Jacques Olivier, Phang Sock-Yong, J. Thampapillai, Ping Wang, Wong Wing-Keung, and Zeng Jinli are gratefully acknowledged. I am also immensely indebted to an anonymous referee, whose incisive, deep and patient comments, on successive drafts, helped greatly to sharpen and improve the paper, as well as to the Editor and the Co-Editor, Professor Mordecai Kurz, for their invaluable advice and encouragement. An earlier version was presented at a Conference in Honour of Ronald McKinnon, held at Stanford University in June 2002     

Financial liberalization and the stationarity of money multiplier

Abstract

In countries without an explicit inflation targeting mechanism, a stable relationship between the monetary base and the money supply allows policymakers to implement changes in monetary policy with a reasonable degree of certainty about the impact on the money supply. The relationship can, however, be influenced by major structural shifts such as financial sector reforms. The present study finds that when structural change bought about by financial liberalisation is ignored, the unit root hypothesis is spuriously accepted. However, once this break is incorporated into the analysis, the multiplier exhibits no presence of a stochastic trend.     

Long-term impact of trade liberalization on human capital formation

While a growing line of research has assessed the effect of trade liberalization on human capital formation, most of these studies focus on its short-term effect on individual’s school attendance. Much less is known about its long-run effect, as well as the impact on other aspects of human capital formation such as labor market and noncognitive outcomes. This paper studies the impact of trade liberalization on individuals’ long-term human capital accumulation, including school attendance, cognitive abilities, labor market performance, and noncognitive outcomes. By constructing prefecture-year-level tariff barriers, our identification strategy exploits variations in different cohorts’ exposure to a trade shock at age 16 for individuals within the same prefecture. Empirical results suggest that trade liberalization leads to decreased completed years of schooling, cognitive abilities, wage, and noncognitive outcomes. We provide suggestive evidence that this observed pattern is explained by the expansion of job opportunities in relatively low-skilled and labor-intensive sectors.     

Policy commitment and the welfare gains from capital market liberalization

This paper evaluates the quantitative impact of capital liberalization on the taxation structure and welfare of the liberalizing countries when governments conduct fiscal policy optimally but without commitment (time-consistent policies). The transition from a regime of capital autarky to a regime of free mobility leads to a decrease in the long-term tax rate on capital of 13 percent and an increase in the tax rate on labor of 2 percent. As a consequence of this taxation shift, welfare increases by about 1 percent. The reduction in capital taxation induced by capital market liberalization is welfare improving because, in the absence of capital mobility, the time-consistent policies over-tax capital.     

Financial systems and economic growth in South Africa: a dynamic complementarity test

This study examines the relationship between banks, stock markets and economic growth in South Africa. The study attempts to answer one critical question: are stock markets and banks complementary to one another in the process of enhancing economic growth? The complementarity between the stock markets and banks is examined by including a set of interactive terms in a standard growth model, alongside bank development and stock market development proxies. In order to test the robustness of the results, three proxies of stock market development have been used, namely stock market capitalization, stock market traded value and stock market turnover – against the ratio of bank credit to the private sector, a proxy for bank-based financial development. The economic growth is, however, proxied by real GDP per capita. Using the ARDL-Bounds testing procedure, the study finds that the complementarity between stock market development and bank-based financial development is weak and sensitive to the proxy used to measure stock market development.     

Addressing causality in the effect of capital account liberalization on growth

Evidence supporting the positive effects of capital account liberalization on growth is mixed at best. Even after conditioning on the quality of domestic financial institutions, a significant number of studies still find no effect. One possible explanation is reverse causation. If low growth countries liberalize in order to spur growth, the observed correlation between growth and liberalization will underestimate the impact of capital account openness. To eliminate this bias, I instrument capital account liberalization with the average level of openness of other countries to capture the “fad” element in financial liberalization. IV estimates indicate a significant positive effect of liberalization on growth, confirming the predictions of economic theory.     

Financial liberalization: The case of Sri Lanka

Empirical Economics - According to the advocates of financial liberalization in less developed countries (LDCs), a rise in the real interest rates is essential to stimulate savings, investment and...     

Financial crises and the evolution of credit reallocation: Evidence from Korea

This paper examines the evolution of credit reallocation from a geographical location perspective using data from Korean non-financial firms 1984 to 2013. Employing a Bayesian dynamic latent factor model, I decompose local credit reallocation rates into national, region-specific, and idiosyncratic allocation components. This paper uncovers evidence that the national factor, which explains the movement of credit reallocation across 14 administrative districts, intensified after the 1997 financial crisis and played a major role in driving local credit reallocation rates. Furthermore, district-specific factors, which exhibit heterogeneous patterns across districts, also account for a significant portion of credit reallocation fluctuations, which is attributable to districts' heterogeneous geographical properties and dominant industries. Importantly, district-specific factors are the main driver for reallocation dynamics for small firms, suggesting that small firms' financing is more affected by local financial market conditions, whereas the national factor explains more of large firms' debt financing.     

Financial liberalization and the selection of emigrants: a cross-national analysis

This paper explores the impact of financial liberalization on the migration of high skilled labor from 46 countries to the Organization for Economic Cooperation and Development, taken at 5-year intervals over the period 1985–2000. Using an exploratory factor analysis, we are able to distinguish between two dimensions of financial liberalization, namely the robustness of the markets and their freedom from direct government control. We find that a standard deviation improvement in the robustness of the source country financial sector magnifies the extent of skilled emigration by a factor of about 3.9–5.1 % points on the average. However, a corresponding increase in the freedom of the source country financial sector from government control has a statistically insignificant impact. Further, the impact of improved financial sector robustness on selection is more pronounced for countries with a better quality of institutions in terms of the perceived credibility of the regime in terms of its ability to protect property rights.     

Efficiency change,technological change and capital accumulation in Italian regions: a sectoral study

This paper examines the sources of labour productivity in the Italian regions during the period 1980–2004. Five economic sectors are investigated using data envelopment analysis (DEA) and taking into account productive specialisation and sector inefficiencies. Labour productivity change is decomposed into five components by means of Malmquist productivity indices: intra-sector efficiency change, composition efficiency change, input-biased technical change, magnitude component technical change and capital accumulation. Using bootstrap procedure, the components of labour productivity changes are statistically tested. Efficiency analysis shows that productive specialisation is not a source of inefficiency and efficiency gains can be obtained by sector-specific policies. Thus, it is possible to obtain improvements in efficiency in each sector of activity rather than reallocating resources among sectors. The results of the decomposition by sectors reveal heterogeneous sources of growth. The total economy has shown evidence of non-neutral technical change and, it has been found that agriculture, industry and construction experienced capital using technical change. The analysis of the decomposition of the labour productivity growth is complemented by an analysis of β-convergence.