Publication Type

Journal Article

Publication Date

2006

Abstract

We address three related questions concerning financial liberalization in a small open economy. Does financial liberalization and the resulting capital inflow improve production efficiency in the domestic economy? Who benefits from financial liberalization in the long run and in the short run? Should financial liberalization be implemented gradually or hastily? Our main results are as follows. First, whether financial deregulation in one sector can improve production efficiency may depend on financial regulation in other sectors. Second, financial liberalization may have opposite welfare implications to domestic agents with different productivity in the long run. Third, although some domestic agents lose in the long run, they actually benefit from financial liberalization during the transitional process of deregulation. Finally, a gradual implementation helps achieve a smooth transition.

Discipline

Economics

Research Areas

Macroeconomics

Publication

Open Economies Review

Volume

17

Issue

4-5

First Page

373

Last Page

398

ISSN

0923-7992

Identifier

10.1007/s11079-006-0355-9

Publisher

Kluwer

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://dx.doi.org/10.1007/s11079-006-0355-9

Included in

Economics Commons

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