Financial Liberalization Policies Research Articles

Interest rate liberalization and household investment in China

In this study, we investigate the impact of interest rate liberalization on household investment behavior in China using data from the China Household Finance Survey from 2011 to 2019. We find that financial liberalization significantly increases the likelihood of households participating in financial markets and raises their holdings of riskier assets, driven by the wealth effect. This effect is more pronounced among higher-income, higher-asset, and better-educated households, without housing mortgages, as well as urban households. Our results highlight the importance of financial liberalization policies and provide new perspectives on the “limited participation puzzle” documented in emerging economies, where relatively few households actively invest in financial assets despite high expected returns. This study underscores how interest rate deregulation incentivizes household portfolio reallocation and promotes financial inclusion across socioeconomic groups.

Impact of Financial Liberalization on Economic Growth: An Empirical Evidence from Tanzania

The current study analyzes the impact of financial liberalization on economic growth in Tanzania. It focuses on the inability to attain targeted economic growth. The study employed time-series data spanning from 1970 to 2017. The error correction mechanism was used for estimation. The study contributes to the literature by analyzing short- and long-run effects using financial liberalization index as a proxy of the financial reform in Tanzania. The study reveals that financial liberalization is positive and statistically significant, thus spurring economic growth in the long run, though in paucity of effect. Therefore, policymakers are advised to strengthen more effort on financial liberalization policies to attain the targeted growth level.

Interest Rate Volatility and Economic Growth in Nigeria: New Insight from the Quantile Autoregressive Distributed Lag (QARDL) Model

AbstractThis is a study on interest rate volatility, a crucial form of volatility which affects local and foreign investments in the real and financial sectors. Whether to prioritize interest rate stability to prevent distortions in the market mechanism or to prioritize other macroeconomic objectives while allowing interest rates to independently react to market forces is a key question for Nigeria’s apex monetary authority. Answering this question is the primary motivation for this research. This paper is an attempt to establish the effect of interest rate volatility on economic growth and further conclude on the suitability of the financial liberalization policy in Nigeria. To reach an evidence-based conclusion, the paper analyzes the relationship between interest rate volatility and economic growth in Nigeria for the period 1981–2020. The QARDL procedure was employed to establish the short-run and long-run quantile-specific impacts of interest rate volatility. As a final step, Granger causality tests are conducted to investigate the predictive powers of the variables. It is discovered from the econometric analysis that interest rate volatility adversely affects the economic performance of Nigeria in both the short run and long run. Consequently, full liberalization is not suitable for the economy. Moreover, we find that the short-run adverse growth effect of interest rate volatility is greater when the economy is already in a relatively weak state, whereas the long-run adverse growth effect is greater when the economy is already in a relatively strong position. The findings sufficiently prove that full interest rate liberalization is not Pareto efficient for Nigeria. Hence, greater supervision of the interest rate corridor system to reduce volatility in the rates and minimize chances of persistent upward or downward bias is advised. Study limitations and directions for further research are also provided.

The Impact of Financial Liberalization Policies on Income Inequality

<p style="text-align:justify"><br /> <span style="font-size:10.5pt"><span style="font-family:等线"><span dir="ltr" lang="EN-US" style="font-family:"Cambria",serif">This paper examines impacts of China’s financial liberalization policy on income inequality, through three channels: financial scale, financial structure and financial efficiency, an empirical analysis based on panel data of 30 provinces in China from 1996 to 2013 is conducted. The results confirm the Kuznets effect between financial scale, financial structure and income inequality. As the size of the financial sector expands, the financial structure is tilted toward direct financing, and the income gap among residents will experience a "reverse U-shaped" trend that rises first and then falls. Most of China has not yet passed the turning point, and is still in the upper bound of the "inverted U-shaped" curve. Financial liberalization policies will continue to exacerbate income inequality. The impact of financial efficiency on income distribution is quite different in different regions of China. After dividing the whole China into three regions according to the degree of economic development, it is found that the financial efficiency of the eastern and western regions has a Kuznets effect on the income gap, but compared with the eastern region, more provinces and cities in the western region have entered the stage of reducing the income inequality, and the financial development has a great impact on the western region. The effects of financial development on central China are weak, and income inequality increases with financial efficiency.</span></span></span></p>

The Role of Financial Development in Economic Growth using WPM Method

Financial development is possible investments creating information about and allocation of capital, monitoring of companies and corporate administration, commerce, diversification and risk management, accumulation and accumulation of savings, exchange of goods and services in activities like facilitation includes improvements. provided by financial institutions economic theory, at best and efficient financing institutions-banks, stock markets and bond markets-which capital it’s for high production applications paying is for economic growth beneficial. development of developing Asia strong to retain and efficient financial systems particularly important are because the performance of the investment as a driver of the region's development reduces the amount of investment. Since the early 1990s the region's financial systems are deep and diversified data indicate. 125 countries more formal econometrics on panel data quantitative analysis, financial development significant in development positive effect confirms having, especially in developing countries. of financial development in the development of the region impact than elsewhere significantly different thatno, for the asian financial crisis since then its influence has weakened the results also indicate that financial intermediaries, these teachers are bankers finance in the weakness of the sector effect of liberalization Is it a temporary effect will check that, that is, in the following years only this is observed. beginning of liberalization. this is not the case. of the banking sector weaknesses will only become apparent over time. however, in developing countries financial Liberalization Policy as an important part of the reform has Among some researchers, it is about virtues reflects overall confidence financial liberalization is that of the banking sector lead to weakness significant factor is, also of economics status even after controlling that there is this effect they found, the first one below income in the area earning funds summarize the implications the first one below review the area we do. income, cost and Savings, investment and wealth accumulation financial statements of we briefly reviewed do. The second division financial institutions orrole of intermediaries deals with The third section income, interest and money conventional theories about funding for real development between growth and development for important contacts enough attention that he did not pay some theoretical adaptations proposes and argues. The purpose of this paper is tofield-projectseveral in conjunction with the detain determinations and measurement perceived at a distance water using data for productivity mapping (WPM)methods and protocols is to create. Stock Market Investments, Real Estate Investments, Cryptocurrency Investments, Peer-to-Peer Lending and Startups and Venture Capital. Risk Management, Return on Investment (ROI), Portfolio Diversification and Costs and Fees. the Ranking of Financial development. Real Estate Investments is got the first rank whereas is the Cryptocurrency Investments the Lowest rank.

Impact of Financial Liberalization on Firm Risk

Purpose: This study investigates the impact of financial liberalization on firm risk and examines the relationship between liberalization and firm risk from a global perspective by using three different measures of financial liberalization to analyze the entire sample as well as four different subsamples by using firms from different countries as our samples. Design/methodology/approach: We use the pooled ordinary least squared (OLS) regression model and a series of robustness checks to conduct our analysis by using our sample that includes 63 countries, 18,317 firms, and 161,317 firm-year observations from 1991–2017. Findings: Our empirical analysis concludes that financial liberalization has a significantly negative effect on firm risk. Following a series of robustness checks, we find that the results remain unchanged after categorizing our sample into subsamples according to the level of financial liberalization, controlling for changes in the economic development status, and dividing the sample periods based on the time of the financial crises. Moreover, the quantile regression reveals the asymmetric effect of financial liberalization on firm risk. The findings of our study contribute to a clear perception of how financial liberalization affects firm risk. Originality/value: In this paper, we use the data from multination to know clearly how different countries respond to the financial liberalization policies which may affect the firm risk. Then, we conduct a series of robustness checks to make sure that our result is robust. According to the result, we can see that the negative significant relationship between financial liberalization and firm risk remains unchanged after categorizing our sample into subsamples according to the level of financial liberalization, controlling for changes in the economic development status, and dividing the sample periods based on the time of the financial crises. Furthermore, the quantile regression reveals the asymmetric effect of financial liberalization on firm risk. We note that our findings are new in the literature. Practical Implication: The findings of our paper give suggestions to multinational corporations regarding the proper management of corporate finance in response to adjustments in financial liberalization policies.

Banking Competition, Efficiency and Stability in the MENA Region

The intensification of competition in the banking market following the adoption of financial liberalisation and deregulation policies all over the world has raised questions about their impact on the stability of the banking sectors. This study aims at participating in the continuous debate on how the competition conditions in the market affects the stability of banks in the MENA region. This study exploits a sample of 216 MENA banks operating over the period 1999-2019, and adopts the GMM method to detect the association between banking competition and stability. The empirical results show that market power has a negative effect on banking stability. This result has implications suggesting that the adverse effect of concentration on banking stability implies that regulators should be careful in pushing/encouraging banks consolidate, as this may reduce stability.

Openness and Real Exchange Rate Volatility: Evidence from China

In recent years, China has introduced a series of trade and financial liberalization policies and taken a crucial step towards the internationalization of RMB. These new developments bring about one question: how has openness affected the RMB real exchange rate volatility? Our empirical results reveal that in the long term, both trade and financial openness reduce exchange rate volatility; in the short term, the effect of financial openness varies across the three financial sub-accounts. Financial development can magnify (mitigate) the impact of trade openness on volatility in the short (long) term, but its role in affecting the impact of financial openness depends on the financial sub-account involved. Economic policy uncertainty (EPU) weakens the impact of openness on exchange rate volatility. In addition, financial openness absorbs more external shocks than trade openness. Foreign exchange reserves, while offsetting financial crisis shocks, cannot adequately absorb current account balance shocks.

Bank competition, regulatory capital, and risk taking: international evidence

PurposeMotivated by recent financial liberalization policies in emerging markets, this study investigates whether bank competition and regulatory capital affect bank risk taking in an international banking context.Design/methodology/approachBank competition is regressed, using GLS regression, on various measures of bank risk, to reflect regulatory, accounting and market-based risk-taking. The authors use a sample of publicly traded banks operating in Africa during 2004–2019.FindingsResults show that higher level of bank competition increases bank risk taking and results in greater financial fragility in the absence of banking capital regulations. Furthermore, larger capital adequacy ratios control the risk-taking incentives of managers and guard banks against the risk of default. Further tests confirm the significance of market-based risk measures over accounting and regulatory measures.Practical implicationsFindings are relevant to bank managers and regulators in their sustained effort of finding an optimal balance between bank competition and financial stability. Increased competition should be balanced with capital regulations to curtail bank excessive risky behavior and derive the social benefits of greater competition in the market while sustaining overall economic growth.Originality/valueThis study provides novel evidence in an international context. First, it uses regulatory, accounting and market-based measures of bank risk taking to reflect regulators', management and market participants' emphasis. Another original contribution is the investigation of bank competition across African economies characterized by financial liberalization, stringent banking system and interesting socio-economic challenges.

The Impact of Financial Liberalization on the Effectiveness of Monetary Policy in Algeria

Abstract The objective of this study is to measure the impact of financial liberalization on the effectiveness of monetary policy in Algeria during the period 1970-2021 using the Autoregressive Distributed Gaps (ARDL) model and analyzing the implications of the financial liberalization policy on the monetary delivery channels as well. In the context of the liberalization of the financial sector, both channels of the exchange rate and financial assets play an effective role in transferring the impact of monetary policy to the real sector compared to the channels of interest rate and bank lending, with central banks relying on the use of indirect tools that depend on market forces to manage their monetary policy. The results of the study also concluded that the policy of financial liberalization represented in loans granted to the private sector as a percentage of GDP positively affects the effectiveness of monetary policy and enhances its ability as a tool to direct the economy towards achieving the goal of economic growth.

Financial Liberalization, Institutions and Savings in Nigeria

The rate of savings in Nigeria has been low over the years. Despite efforts to stimulate savings through the adoption and implementation of financial liberalization policies, the rate of savings in the country has remained low in absolute and comparative terms. Previous studies on the determinants of savings in the country focused mainly on the association between savings and financial liberalization [(Gross Domestic Product (GDP), Broad Money Supply (BMS) and Deposit interest Rate (DPR)], paying scant attention to institutions [(Rule of Law (RUL), Control of Corruption (COC), Political Stability and absence of violence/terrorism (POS), Regulatory Quality (RGQ), Voice and Accountability (VAC) and Government Effectiveness (GEF)]. This study therefore examined the effect of financial liberalization and institutions on Gross Domestic Savings (GDS) in Nigeria. The study adopted ex-post facto design. Annual data from 1996 to 2020 on Nigeria was sourced from World Development Indicators (WDI, 2020) and World Governance Indicators (WDI, 2020). Data was analyzed using Ordinary Least Squares (OLS) estimation technique. The study adopted the 5% level of significance. Findings of the study revealed that GDP, DPR and BMS had positive and insignificant effect on GDS in Nigeria. The findings also showed that institutions was correlated with GDS in Nigeria. The study concluded that the effect of financial liberalization on savings in Nigeria improved when it was moderated with institutions. The study recommended that the country should strengthen its institutions by controlling corruption and ensuring political stability and regulatory quality to boost its savings.

Relationship Between Public Debt And Financial Development In Kenya

Purpose: This study sought to analyze the relationship between public debt and financial development in Kenya. The specific objectives were to examine the association between public domestic debt and financial development, to analyze the connexion between public external debt and Kenya's financial development. The study was underpinned on Financial Repression, Financial Liberalization, Lazy Bank Hypothesis, Demand following hypothesis, and the MacKinnon theoretical model.
 Methodology: The study applied positivism philosophy and explanatory research design. The study used country data hence no need for sampling. Data was collected for 1964 to 2019 from Kenya's Central Bank. Descriptive and inferential statistics were used in the study. Diagnostic tests such as Multi-collinearity, Auto-correlation, Normality, and Unit root were performed. Specifically, the long-run and short-run relationships were analyzed using the Auto-Regressive Distributive lag (ARDL) bound test for cointegration. An error correction model was applied to examine the short-run association.
 Finding: The test suggested the presence of a stable long-run relationship between financial development, public domestic debt, public external debt, and interest rate. The study finding indicates that public domestic debt has a statistically significant negative relationship with Kenya's financial development both in the long and short run. Also, public external debt has a statistically significant positive long and short-run association with financial development.
 Unique Contribution to Theory, Practice and Policy: The affirms liberalization theory by Shaw and Mackinnon (1973), advocating for a reduction in direct government participation in the financial market credit restriction In addition the study's findings are consistent with the lazy bank hypothesis by Hauner (2009) In addition, the government must ensure appropriate market-determined interest rate must be applied in domestic public debt. Furthermore, the government should continue fostering financial liberalization policies that encourage public external debt has its impacts positively on financial development.
 

Financial Liberalization and Banking Crisis in Emerging Countries

From the 1970s, emerging countries embarked on financial liberalization policies with a view to promoting growth. However, these policies can have adverse effects on the stability of banking systems. The central hypothesis of this article is that their impact on the stability of the banking system largely depends on the modalities of liberalization. The analysis focuses on a sample of seventeen emerging countries over the period 1990-2012. The interest of this period is that it allows not only to analyze the causes of these crisis but also to integrate new banking crisis such as those of South-East Asia (1997), Argentina (2001 ) and Turkey (2001) while most of the studies analyzed in the literature are limited to crisis that occurred before 1995. Then, using the logit method, we found that financial liberalization played an important role in explaining banking crisis and that economic growth reduces the probability of suffering a crisis. In addition, at the level of institutional variables, the more contracts are honored, the more the probability of suffering a banking crisis decreases.  

Effects of financial statement and macroeconomic factors on risk measures of banks in India

This paper aims to analyse the effects of financial statement indicators and off-balance sheet items affecting risk measures among Indian banks employing both panel data regression and a non-parametric decision tree approach. We explore the effects of bank size, leverage, exposure to contingent liabilities including off-balance sheet derivatives usage and macroeconomic factors on risk measures for banks. In this paper, it is also aimed to examine the effects of the major financial liberalization policy period in the domestic market in India that started in the mid-1990s and ended around 2004 as well as impacts of the 2008 global financial crisis on the risk measures of banks operating in India. As risk measures, we present a comparative analysis of liquidity, solvency, and interest rate risk measures of Indian banks across public (government) and private ownership categories. Main findings from our study demonstrate (i) significant impact of capital adequacy and the bank size on all the risk measures, (ii) contingent liabilities (including derivatives usage) at banks is observed to significantly impact the asset management measure of liquidity risk and the solvency risk of banks, (iii) GDP growth is observed to impact the asset management and liability management measure of liquidity risk, (iv) the global financial crisis is found to have a significant impact on the liquidity risk measures and interest rate risk, but a weak effect on solvency risk of Indian banks, (v) bank ownership category (government owned versus private sector banks) is observed to have a significant impact on all the risk measures, and finally (vi) financial liberalization reforms had a highly significant effect on the liquidity risk at banks.

Determinants of Financial Inclusion: A Comparative Study of Kenya and Ethiopia

ABSTRACT This study conducts a comparative analysis of the factors affecting financial inclusion in Kenya and Ethiopia at macro and micro levels. A generalized linear model is used to examine the determinants of and barriers to financial inclusion using the 2017 Global Findex Database, whereas a descriptive analysis is used to explore their macro-level differences. Kenya has a higher level of financial inclusion than Ethiopia. Differences in financial liberalization policy, gross domestic product, percentage of rural population, and mobile money service expansion are some macro-level differences that explain this variation. Differences in literacy rates and means of receiving payments such as government transfers explain some of the micro-level variations between the two countries. In addition, gender, age, employment status, and owning a mobile phone have significant and positive effects on financial inclusion. However, lack of documentation, lack of trust, and lack of money are significant barriers to financial inclusion.

An Entropy Approach to Measure the Dynamic Stock Market Efficiency.

We measure stock market efficiency by drawing the comprehensive sample from Asia, Europe, Africa, North–South America, and Pacific Ocean regions and rank the cross-regional stock markets according to their level of informational efficiency. The study period spans from January 1, 1994, to August 3, 2017. We employ the approximate entropy approach and find that stock market efficiency evolves over the period. The degree and nature of evolution vary across regions and the development stage of the markets. The global, regional, domestic economic, and non-economic factors influence the adaptive nature of the stock markets. The emerging stock markets have improved efficiency by financial liberalization policy but are adversely affected by global shocks. The estimates validate the relevance of the adaptive market framework to describe the rejection of random walk without excess returns. The results suggest the growing presence of technical analysis and active portfolio managers. The emerging markets in Asia hold policy lessons for their peers. The findings suggest that global investors need to overcome the homogeneity bias as returns opportunities exist within the region and types of markets.

English

After decades of failed developmental efforts, many economies around the world employed the McKinnon-Shaw liberalization thesis to propel the development of their financial systems. Whiles some of these economies had success stories, others had frustrating outcomes. This study examines the financial liberalisation and financial development dynamics considering inflationary effects, in SSA spanning 2000 to 2019. We conducted preliminary tests to ascertain the suitability of the data for the study and then estimated the PVAR model. Impulse response functions and forecast error variance decompositions were obtained from the residuals of the model estimates. The study established a weak, long-run bidirectional relationship between liberalization and financial development, with liberalization accounting for about 0.09% of financial development, while financial development explains about 0.06% of liberalization shocks on average. It takes 3 to 5 years for the impact to manifest after policy implementation. The study further revealed a positive short-run bidirectional relationship between inflation and liberalization, and an inverse short-run bidirectional relationship between inflation and financial development. While inflation explains about 0.87 and 1.79% of liberalization and financial development shocks respectively, liberalization and financial developments respectively explain about 2.62 and 7.41% of inflation shocks on average. It takes 1 to 2 years for the impulse to manifest after policy implementation. We recommend that for financial liberalization policies to succeed, stable inflationary regime and the necessary preconditions for liberalization policies should be in place prior to the implementation of liberalization policies.    Key words: Liberalization, financial development, endogeneity, exogeneity, stochastic trend, impulse response functions (irf), and forecast error variance decomposition (fevd).

Financial Liberalization Policies and Sustainable Economic Development In Arab Countries

Financial liberalization has attracted increasing attention from the Arab region in recent decades. It plays a critical role in the financial sector in promoting balanced and sustainable economic growth, the experiences of macro and structural reforms have shown. The ability of the economy to overcome adverse economic conditions is primarily related to the size of reforms and policies of financial liberalization due to the financial sector's contribution in raising the efficiency of the economy and achieving Stability. Macro-reforms that include reform and stability of prices, reform of public finances and exchange and trade systems, and the restructuring of economic activities involve the basis for capital resources and the re-direction of new savings and investment flows. In addition, various markets, institutions, and channel tools are optimized to mobilize local savings and mobilize them in the form of credits and investment instruments. Then, direct them towards the sectors and for the most efficient and profitable economic activities. Furthermore, the governments work to attract foreign investment and attract it to provide additional financing resources that contribute to the coverage of local development. The liberalization might take varied forms for groupings of small and big businesses. The intended result is that the government should pursue a long-term policy plan that promotes companies' sustainability, including high- and low-income firms. Additionally, it is envisaged that businesses would place a greater emphasis on innovation, significantly boosting the quality of human resources to gain a competitive edge in the face of global competition.

Joint analysis of the non-linear debt-growth nexus and capital account liberalization: New evidence from sub-Saharan region

This paper conducts an empirical investigation of the debt-growth nexus at firm level. We exploit a panel of sub-Saharan firms observed over the period 2004–2014 to jointly assess the impact of debt and financial liberalization on firm growth measured in terms of sales. Using a system GMM estimator, we find an inverted U-shaped relationship between debt and firm growth. However, the form of this relationship was reversed (U-shaped) by examining the joint effect of debt and capital account liberalization. This change results from the adoption of the policy of financial liberalization put in place by the regulatory authorities of the sub-Saharan countries. In addition, our results show that investment impact firm growth. Consequently, agency and trade-off theories are admitted. These findings may yield important policy implications. Policy makers must optimize financial decisions and adopt a gradual financial liberalization policy, thus ensuring the survival of sub-Saharan firms.

Modeling financial liberalization and economic growth in Liberia: A dynamic analysis

The impact of financial reforms and financial development on an economy has received considerable attention over the recent past. According to McKinnon and Shaw, financial liberalization policy and, in particular, interest rate deregulation is a means for achieving high economic growth by boosting savings and investments. This paper aims to investigate the long‐run relationship between financial liberalization and economic growth in Liberian as articulated by McKinnon and Shaw's theory. The study employed time series data spanning from 1980 to 2016 and dataset was sourced from World Development Indicators databases. The dataset was estimated using econometric techniques of Combined Co‐integration test, Dynamic Ordinary Least Squares, and robustness check of Fully Modified Ordinary Squares, and Canonical Co‐integration Regression, respectively. Results reveal, positive and significant coefficient of financial liberalization variables, thus supporting the McKinnon and Shaw hypotheses. Also, found long‐run Combined Co‐integration among the estimated models. Policy recommendation includes that policymakers should refrain from policy that will adversely affect deposit interest rates considering its immense impact on savings mobilization, gross investment, and economic growth. Furthermore, improving competition will compel deposit‐taking institutions to raise deposit interest rates in a bid to attract more depositors, thus reducing interest rates spread.