Financial Market Liberalization Research Articles

Does financial liberalization spur economic growth? A meta-analysis

Based on a survey of 54 published articles, we undertake a meta-analysis of 906 estimates of the effects of financial liberalization on economic growth. We conclude that the literature contains statistically significant evidence of a positive effect of financial liberalization on economic growth, and, in some cases, these effects can be considered as economically meaningful. Thus, some types of financial liberalization are effective policy tools for increasing an economy's rate of growth even if financial liberalization increases the volatility of the financial sector. We also identify the presence of publication-selection bias in the literature and, after adjusting for this bias, we conclude that stock market liberalization and comprehensive financial market liberalization are the most effective forms of financial sector liberalization for stimulating economic growth. There is conflicting evidence on whether other types of financial liberalization have similar effects.

Research on the Development of the International Economic Order Under the Impact of China-US Trade War Strategies and China's Response Plans

This study aims to explore the impact of the China-US trade war on the international economic order and its consequences. The research examines the background of the trade war, its global economic implications, and the stability of the international economic order. A particular focus is placed on China's response strategies in the face of the China-US trade war, including multilateral cooperation, industrial upgrading, and financial market liberalization. This research seeks to provide valuable insights for maintaining the stability of the international trade order and the future development of China.

Mapping the Themes Underlying the Literature on Cross-Listing of Shares—A Contemporary Corporate Strategy of Sustainable Growth

In the current era of globalization, cross-listing literature has been growing as a tool to achieve sustainable growth and provide policy implications for multinationals, international investors, and regulators. This research explores the three themes—influential aspects, intellectual structure, and conceptual structure—that underpin the growing cross-listing-based literature published in the Web of Sciences until July 2020. This study used bibliometric coupling to segregate the research front of cross-listing and then studied each theme’s conceptual structure and influential aspects separately. The analysis revealed that the cross-listing literature could be divided into three clusters: (1) price discrepancies and stock returns related to asymmetric information and market efficiencies, (2) earnings quality, earnings management, and the adoption of accounting standards, and (3) cross-listing benefits covering the growth, informativeness, and liquidity. For instance, our analysis identifies the impact of cross-listing on local market developments regarding trading volume and liquidity, secondly the benefits of financial market liberalization for cross-listing, particularly regarding the cost of capital, and thirdly the variation in abnormal returns after cross-listing with changing risk exposure, shareholding base, and amount of money raised. This research also proposes a future research agenda for the advancement of each cluster of cross-listing identified. The outcomes of this literature review will provide valuable information to practitioners and researchers and help them to further understand the broad perspective and prospects of cross-listing.

Does financial development improve economic growth? The role of asymmetrical relationships

This paper investigates the impact of financial development on economic growth in India, a major emerging economy. We estimate more flexible models than typically found to capture potentially asymmetric relationships while accounting for trade openness, foreign direct investment, and technological development. We document a cointegrating and asymmetric relationship between the key variables using nonlinear and standard autoregressive distributed lag models. We find a consistently negative impact of financial development and foreign inflows on economic growth in India in the long and short run, while trade liberalization and technological development have positive effects. Our findings, therefore, suggest caution regarding financial market liberalization in India.

Дослідження впливу кваліфікуючих факторів на інвестиційно-інноваційні процеси в умовах сучасних викликів

This article explores the influence of qualifying factors on investment and innovation processes in the face of modern challenges. The influence of Ukraine's positioning in world rankings on the dynamics of investment and innovation processes is determined, which determines the degree of confidence of a foreign investor and highlights the main obstacles to the formation of an innovation-active environment within the country according to the structural components of the indices. Attention is paid to the scientific discussion of the issue of protecting the rights of minority shareholders, which has become aggravated with the implementation of the principle of liberalization of the Ukrainian financial market. The tendencies of the increase in the cost of borrowed resources within the country in connection with the policy of inflation targeting are considered, which reveals the difference between the planned and actual inflation target, since an increase in the discount rate is a managerial lever for reducing inflation. Attention is focused on a fairly high share of NPL loans in the structure of the loan portfolio of commercial banks, which necessitated improving access to credit information through the creation of a new public credit registry based on the NBU. The need has been identified for increasing the volume of the resource base, in particular with increasing the share of external sources of financing, which will help ensure competitive conditions for the implementation of the financial and economic activities of national producers. The expediency of introducing managerial financial and economic levers for the development of medium- and long-term financial instruments in the context of financing investment and innovation processes is substantiated.

Credit constraints and spillover effects of financial market liberalization: Case of Colombia

We identify an effect of deep trade agreements that is previously not studied in the literature. The 2012 US-Colombia Trade Promotion Agreement caused Colombia to liberalize its financial markets, providing greater access to foreign financial services. We show that this financial market liberalization effectively reduced credit constraints faced by Colombian firms. We merge balance sheet data with export transaction data, allowing us to analyze changes in export decisions of more than 7000 firms over the span of 10 years. As a result of the reforms, in sectors that rely more on external financing, exports have increased to the rest of the world. That is, the trade-diversion effects of the agreement were reduced due to improved access to external financing by foreign capital. Thus, we demonstrate a new channel for potential welfare gains from trade agreements.

Credit market imperfection and goods market deregulation in OLG model

AbstractWe study the effects of financial development and product market competition on the macroeconomic dynamics in an overlapping generations model with credit market imperfections and monopolistic competition. In general, financial development is regarded as one of the key engines for economic growth. Financial market deregulation facilitates financing for entrepreneurs and has a positive effect on business growth. In fact, the effects of financial liberalization are different between developing and developed countries. We develop a model in which financial development brings about the regime shift endogenously. We show that financial liberalization at an early stage of economic development is harmful for economic growth. Instead, financial liberalization should be conducted after the take‐off of the economy. The sequence of carrying out several market deregulation policies is important. We insist that the government should deregulate the goods market before financial market liberalization.

A Comparative Analysis of the Nature of Stock Return Volatility in BRICS and G7 Markets

Through globalization and financial market liberalization, the opening up of markets has increased cross-border investments as investors search for higher risk-adjusted returns. This ability to invest internationally has raised the attention given to emerging markets that offer higher risk-adjusted returns relative to developed markets. However, despite the growing importance of emerging markets, the literature on the nature of volatility in global markets is typified by generalizations of findings from developed markets. To fill this gap, this study comparatively examined the nature of stock return volatility in developed G7 and emerging BRICS markets. Broad market index data and GARCH models over the period 2003:01–2020:08 were employed. The study found evidence of volatility persistence, asymmetry, mean reversion and weak evidence of a risk premium in both emerging and developed markets. There was also evidence of significant differences in the nature of volatility within the two sets of markets. These volatility patterns in both groups cast doubt on the assertion that developed markets are more informationally efficient than emerging markets. Thus, markets in the same group may not always have the same nature of volatility, especially in the wake of structural events such as the COVID-19 global pandemic.

Capturing the dynamics of the China crude oil futures: Markov switching, co-movement, and volatility forecasting

The launch of the China's Shanghai International Energy Exchange (INE) oil futures market in 2018 has shed new light on the role of China in international crude oil market. Understanding the dynamics of the newly arrived RMB denominated crude oil futures market not only facilitates the international market participants in risk management and hedging, but also provides helpful information for policy-makers, especially for those from emerging countries, to financialize its energy market, along with the currency internationalization and financial market liberalization. However, the literature on the China crude oil futures is quite scant compared with abundant literature on international benchmarks. In this regard, we make attempts to capture the dynamics of the China crude oil futures by: (1) adopting Markov switching analysis to uncover the regime switching of the INE crude oil futures market; (2) investigating the dynamic connectedness of INE, WTI, and Brent crude oil futures; (3) forecasting the realized volatility of INE crude oil futures. The results have shown that: (1) the outbreak of global pandemic at the beginning of 2020 has switched the crude oil futures market from a stable regime to a volatile regime; (2) the increasing financial uncertainty originated from the world, U.S., other advanced countries and emerging countries could significantly negatively affect the movement of crude oil futures. However, China suffers the least; (3) the dynamic conditional correlations between INE vs WTI, and INE vs Brent are high but lower and more volatile than that of WTI vs Brent; (4) Brent crude oil futures contribute to improving the accuracy of volatility forecasting of INE crude oil futures; and more importantly (5) we highly recommend carrying out volatility forecasting by incorporating intraday realized measures into mixed data sampling approach, in particular, when intraday transactions present extremely different behavior across the time.

Managing the “Post Miracle” Economy in China: Crisis of Growth Model and Policy Responses

ABSTRACT Combining some theoretical perspectives of economic development stages, a capital accumulation regime with Chinese characteristics and a techno-economic paradigm, this paper tries to explain how the Chinese growth miracle reached the edge of crisis after 2008. It argues that for 30 years, the ‘visible hand’ managing the Chinese economy has progressively shifted from local governments’ initiatives and experiments to central government’s macro policy supplemented with industrial economics tools. This brought China’s growth from the factor-driven to the investment-driven stage, and progressively decoupled the financial system from China’s local, dominant, accumulation regime, directing finance into a technological accumulation regime. The Chinese central government attempts three macroeconomic approaches with which to readdress the growth pattern: rebalancing; supply-side reform; and innovation-driven development. The Belt and Road Initiative is an attempt to domestically recouple backward to coastal provinces, trade and investment to economic diversification, and to upgrade provinces. The current Chinese growth model is composed of different capital accumulation regimes: export, domestic infrastructure investment, financial market liberalisation, e-commerce platform economy, all based on the manufacturing economy built up over the last 40 years. China needs upgrading its manufacturing economy to an innovation level and build a new capital accumulation regime based upon it.

The Impact of Inclusive Finance on Household Risk Financial Market Participation

It is a general rule that households will pay significantly more attention to management of family assets since their income has experienced a continuous increase, and Chinese families are no exception. With the Opening and liberalization of financial market in China, policies about financial inclusive service are put forward after the first decade of the 21^st century to support household finance. However, there are still rooms for improvement in the implement of the policy. It is still not very clear that how we can enhance its supposed role in family financial decisions and whether it has equal utility to household in various financial conditions and characters. So research must be made to better evaluate the effect of inclusive finance and help promoting its development. Based on 2017 Chinese Household Financial Survey (CHFS) data, the choices of household financial allocation including the possibility of risk financial market participation and the proportion of risk financial assets held by households are studied. By using factor analysis to combine both traditional and digital factors, a new inclusive finance index is calculated and the fact that inclusive finance can increase the possibility of household risk financial market participation is further proved. Moreover, by subdividing the sample, it is found that the utility of inclusive finance is greater in rural areas, among low-income households and in central and western China, and that the utility in urban areas is determined by household age structure, income level and financial literacy. As to the influence mechanism, inclusive finance can change household’s choice of asset allocation by increasing their financial literacy, which is measured by related questions from the questionnaire. Since inclusive finance is widely confirmed to promote the rational allocation of financial assets, the development of inclusive finance in rural areas, among low-income households and in central and western China should be more primarily supported to better tap their potential in financial sector, while the development in urban areas should be processed together with the increase of income and the popularized of financial knowledge.

China’s asset management industry: mapping the global landscape

Purpose The purpose of this article is to describe the globalization process of China’s asset management industry. Design/methodology/approach This article looks at the globalization of China’s asset management industry from a bilateral perspective. On one hand, it analyzes new measures promulgated in China to expand the opening up of capital markets and attract foreign asset management institutions. On the other hand, it gives an introduction on some advisable choices for Chinese asset management companies to invest overseas. Findings With the promulgation of the Shanghai Guidebook for Overseas Asset Management Institutions among other measures that further liberate China’s financial market, 2020 marks an important era for foreign asset managers. Besides, this article suggests that Luxembourg, Ireland and the UK are ideal European destinations for Chinese asset management companies to invest in. Practical implications This article aims to keep foreign asset managers updated of new rules regarding financial market liberalization in China and help them to expand business in Shanghai. This article also gives a brief introduction on the fund industry in Ireland, Luxembourg and the UK, to give those Chinese asset management companies which are considering overseas investment some inspiration. Originality/value Practical guidance from experienced lawyers in the practice of foreign investment and capital markets.

An Analysis of Bond Market Liquidity and Real Sector Output in Selected African Economies

There is increasing traction in the literature on the activities of the secondary securities’ market especially with bonds on financial development, with little known on its functional linkage to real sector growth. Following popular theories on bond financing, this study sought to fill this gap by examining if functional tie exists between the secondary bond markets and real sector output among fourteen African countries with functional bond markets and complete data. Among the variables adapted for use are real gross domestic product per capital, corporate bond issues, industrial output, corporate bond turnover, financial education, electricity consumption and institutional quality. The study tested through unit roots to augmented Toda-Yamamoto non-causality and co-integration approach to investigate both the short- and long-term relationships among the different variables. A priori, it was expected that market information would engender capital raising through bond issues and fund allocation. The study however, discovers that corporate bond turnover does not cause industrial output growth, neither does it cause corporate bond issue. An important short run result indicates that the impact of financial education is gradually being felt in the bond markets. For most of the long-run relationships, the study accepted the Null hypothesis. This implies that the investing public do not absorb the usefulness of the market information, which may explain the thinness and shallowness of African corporate bond market overtime. The liquidity signalling effects is however found to influence regulatory institutional quality in the long-run. An accelerated financial market liberalization and tax incentives for private sector provision of market infrastructure are recommended among others for improvement in the African bond markets investigated, among others.

ERROR CORRECTION MODEL ANALYSIS OF THE DETERMINANT OF STABILITY OF FINANCIAL SYSTEM IN INDONESIA

The current condition of economic openness is both an opportunity and a challenge that must be faced wisely by the government. Liberalization and economic integration will have an impact on financial market liberalization, which is highly vulnerable to create crisis in a banking system. This study aims to analyze the factors that influence the stability of the financial system in Indonesia by using the Error Correction Model (ECM). The variables used in this research is Capital Banking Credit sourced from Statistics Indonesia (BPS) and Exchange Rate, Inflation, and Money Supply sourced from the International Monetary Fund (IMF) between 2010 and 2015. The results of the study show that; 1) ECT coefficient which has negative and significant value explains that the model is valid. 2) Inflation significantly affects the stability of the financial system in Indonesia in the long and short term

Financial Development and Monetary Transmission Mechanism in Nigeria (1986-2017)

This study explored the impacts of the different aspects of financial development on monetary transmission mechanism in Nigeria from the period of 1986-2017 using quarterly data. Variables such as broad money supply, debt stock, stock market capitalization, stock market value traded, total deposit money bank’s asset, total financial assets, private sector credit, inflation rate, monetary policy rate, exchange rate, all share index and output, were used to carry out this investigation. The study adopted Pesaran, Shin, and Smith (2001) ARDL framework to check the impacts of these individual financial development indicators and how they affect monetary transmission mechanism. The findings suggested that financial development indicators and their interactions with the policy rate influenced each channel of monetary policy with different degrees. Banking sector indicators (size and activity measures) had more influence on the channels of monetary policy transmission compared to capital market indicators, while financial market liberalization had the least influence on the channels of monetary policy transmission. However, the significance of the individual financial development indicators was found to be very weak on exchange rate channel, while the influence of the financial market indicators was strongest on the interest rate channel, thereby supporting previous studies that interest rate channel is the most dominant channel of monetary policy for Nigeria. Finally, the paper recommended that financial reforms must be geared towards strengthening the implementation of monetary policy and the channels through which monetary policies impact real economic activity.

SPILLOVERS EFFECT IN ASIAN PROPERTY PORTFOLIO MARKETS

This paper is to study the spillovers effect in Asian property portfolio market to assess the level of volatility. This is important due to investors increasingly set to go international on real estate market. The increase of integration of property portfolio markets from the perspectives of cross border has put the importance to assess the spillovers effect in particular Asian property portfolio market. The impact of a financial crisis has put paramount interest for investor and policy maker to know the level of volatility and consequently the effect on spillovers. In addition, real estate market has also been the subject of financial risk analysis. The globalisation process has given impact to the integration of market which consequently deregulation and financial market liberalisation. Therefore, spillovers effect among Asian portfolio market need to be assessed to increase the level of information as well as transparency of portfolio market.

SPILLOVERS EFFECT IN ASIAN PROPERTY PORTFOLIO MARKETS

This paper is to study the spillovers effect in Asian property portfolio market to assess the level of volatility. This is important due to investors increasingly set to go international on real estate market. The increase of integration of property portfolio markets from the perspectives of cross border has put the importance to assess the spillovers effect in particular Asian property portfolio market. The impact of a financial crisis has put paramount interest for investor and policy maker to know the level of volatility and consequently the effect on spillovers. In addition, real estate market has also been the subject of financial risk analysis. The globalisation process has given impact to the integration of market which consequently deregulation and financial market liberalisation. Therefore, spillovers effect among Asian portfolio market need to be assessed to increase the level of information as well as transparency of portfolio market.

The Practice of Rotating Saving and Credit Associations and Interest Rate Liberalization—A Case Study of Wenzhou

Rotating Saving and Credit Associations (ROSCA) is an important informal financial institution in developing economies. This article investigates the practice of ROSCA in Wenzhou as a case to explore how the interest rate is determined in a local credit market. We find that interest rates may vary across different purposes of credit demand (e.g., investment, insurance, or durable good consumption). The difference in credit demand may also drive participants to create alternative ROSCA and its implied interest rates are different accordingly. The case of ROSCA and its relationship with the local credit market may shed light on the financial market development and liberalization of interest rates during economic transition.

Unveil the economic impact of policy reversals: the China experience

PurposeThe purpose of this paper is to reveal the economic impact of policy reversals related to market liberalization reforms in China.Design/methodology/approachTo perform the analysis, the authors hand-collect 59 financial market liberalization policy reversals from 1999 to 2017. These reversals are related to the liberalization of the stock market, bond market, derivatives market, forex market, lending market, and real estate market etc. The authors employ a stylized equilibrium interest rate model from Li et al. (2013) to deduce the impact of policy reversals on economic growth and the associated volatility after the announcement of each policy reversal.FindingsFirst, the authors discover that about half of reversals are related to some tradeoff between the economic growth and the volatility associated with growth. Second, the authors also find that about a quarter of the reversals are detrimental to both the growth and the stability. These reversals, if known to policymakers, should be entirely avoided or corrected. Third, using a simple diagnostic test, the authors can identify detrimental reversals at the intra-day frequency by computing the change of the term spread and the volatility before and after the reversals.Practical implicationsThe findings are useful for identifying effective policymaking in developing countries where mature democratic and rigorous policymaking processes are often lacking and formulating economic policies is challenging. The findings suggest that policy reversals serve China well by improving the quality of the policy made without posing destructive consequences to the existing economic infrastructure. This empirical evidence is important for a better understanding of the benefits of policy reversals on economic growth.Social implicationsThe empirical procedure provides a timely and objective evaluation of policy shifts, allowing for the general public to discern the rationale behind the policy decisions. Consequently, stakeholders’ trust and confidence in policymakers is enhanced so that the probability of the successful implementation of structural reforms may increase in these developing countries.Originality/valueFirst, the results reveal some successful examples of Chinese policymaking in the path of liberalizing financial market. The authors find that the Chinese liberalization policy flip-flops have resulted in a more balanced growth on some occasions with reduced growth rate and volatility. Second, the proposed methodology provides an objective evaluation of policy shifts, allowing for the public to infer the general direction of the impact generated by policy shifts. Subsequently, stakeholders’ trust and confidence in policymakers can be enhanced and/or restored if the process of finding a successful path of structural reforms is unambiguous. Finally, the interest rate model also provides a timely method to evaluate the impact of policy shifts at an intra-day frequency, whereas most macroeconomic indicators are available at longer frequencies such as monthly or quarterly. The timeliness in understanding the economic consequences of policy reversals can be critical to prevent the destructive consequences of bad ones.

Did we trade freedom for credit? Finance, domination, and the political economy of freedom

This article concerns freedom and financial markets. First, I consider the republican case for liberalization, extending Robert Taylor’s economic model of republicanism to financial markets. This case adopts what I call a “philosopher-king” approach to political theory, arguing by reference an ideal or first-best set of policies or reforms. Then, I investigate the negative externalities of several decades of financial market liberalization, including the erosion of political accountability and the growing concentration of political and economic power in the hands of those best suited to profit from the rise of finance. From this “political economy” perspective, the impact of liberalization is clear: we paid for greater access to credit with political and economic domination. In republican terms, we traded freedom for credit. My analysis, moreover, has implications for republican debates on freedom and the market. In second-best worlds, where reforms will almost certainly be incremental, shaping the balance of power in ways that impact future policy, judging reforms by reference to a vision of domination-free markets will often suggest policies that make individuals less free. The political economy approach is far more relevant to debates about which economic institutions further or hinder freedom as non-domination.