Financial Liberalization Process Research Articles

The Effect of Banking Assets on Inflation in the Iraqi Economy for the Period (2005-2020)

The research aims to show the effect of banking assets on some inflation in the Iraqi economy from the period (2005-2020). The sample of the research is the banking assets and the research community of the Iraqi economy, and the results showed the existence of a long-term equilibrium relationship heading from banking assets to inflation in Iraq during the period (2005-2020). In addition to the existence of the inverse relationship between banking assets and inflation in Iraq. Despite the entry of Iraq after the year (2004) to the market economy and financial liberalization processes, the performance of the banking sector is still weak because it is based on the lack of confidence of individuals in the banking sector in addition to political interventions in the sector. The study recommends that the central bank and the Iraqi private commercial banks have the responsibility to provide the appropriate atmosphere for citizens to benefit from banking services. By creating an atmosphere of confidence among customers and diversifying services to meet all needs.

The Vulnerability of a Small, Open Economy in A Situation of Global Fiscal Crisis: The Impact of the Greek Debt Crisis on the Foreign Direct Investments to Macedonia

The objective of my research is to critique the International Monetary Fund (IMF) stance on foreign investment and the benefits for small, open economies of allowing the free movement of capital. In my research as a whole I will explore the extent to which this stance impacted upon and influenced the economic policies of Macedonia. This will involve providing a contextualized, critical account of the policy of the IMF focusing on a comparison of its policies during the early 2000s through policy documents, political discourse and enacted policies in Macedonia. The conditionality associated with these policies, such as the enforcement of austerity measures (including cutting public spending and reducing debt) and the privatization of public institutions has provoked strong reactions in countries which receive such loans (Goldstein et al., 2003; Feldstein, 1998). Moreover, the main aim of the policies and the lack of in-depth analysis on the levels of development of the economies involved has had devastating outcomes in the past (such as with the East Asian currency crisis [1997/8], Latin American – Argentinian crisis [2001], Ex-Soviet Union crisis [1998], Eurozone crisis [2007/8]) (Lal, 1987; Goldstein et al., 2003; Joyce, 2003). My focus in this research is on exploring how the process of Financial Liberalization (FL) of the Macedonian economy affected capital flows in the form of foreign direct investments (FDI) in the private sector and how the recent Greek crisis of 2008 has impacted on this. According to Barnett and Monastiriotis, the neighboring countries (Albania, Bulgaria, Macedonia and Serbia) in which Greece is either the first or the second largest direct investor, are ‘most vulnerable to negative spillover through reduced FDI flows’ as Greek-owned FDI accounts for 7-9% of the GDP of those countries (2010: 47). In the case of Macedonia, the reality of FL was tested by the collapse of the Greek economy. The first part of my research will critically evaluate simplified models used in previous research to explain the influence of crisis on FDI in small economies like Macedonia. I will argue that investigating the impact of FL is much more complex and cannot be explained by linear regression. Instead, by undertaking an in-depth documentary analysis of official reports and documents, I will seek to investigate how the official view of the benefits of FL impacted on the Macedonian economy, thus implicitly testing the accepted IMF position.

De-jure Financial Liberalization and Economic Growth: An Empirical Analysis

This paper investigated the finance-growth nexus by adopting a novel approach for Pakistan. Firstly, we constructed a financial liberalization index by incorporating several time-varying financial frictions and reforms which is a manifestation of the de-jure financial liberalization process. Secondly, for examining the impact of financial liberalization on growth, we extended the Solow-Swan growth model to construct a financial sector augmented growth model. By incorporating the de-jure financial liberalization index, we examined the growth-finance linkages. By employing the Auto-Regressive Distributive Lag model and error-correction mechanism, the results of the study showed that de-jure financial liberalization provides momentum to economic growth in the short-run as well as in the long run. Empirical findings highlighted that moving towards a more liberalized financial system by reducing rigidities and expediting an effective reform process offers very hopeful prospects of economic growth in developing countries like Pakistan. Keywords: Financial frictions, Financial Reforms, Economic growth, Principal Component Analysis, ARDL Model

Financial Regulation: From Commodification to Public Action

This article seeks to address one of the major pillars of the financial liberalization process from the 1980s onward, namely the commodification of financial supervision and regulation. This process can be regarded as the great transformation of the overall institutional framework of capitalist finance that resulted in the financialization of the economy. Such a transformation replaced public regulation by self-regulation and gave rise to a highly speculative and macro-economically perverse regime of accumulation that resulted in the 2007–2008 crisis. From an institutionalist perspective, this article maintains that contrary to the usual doctrinal assertions, market-related liberal regulation prevents finance from contributing to economic development and restrains public action from supervising markets without generating social dilemmas. Without an appropriate organization and supervision, financial markets do not lead to a social optimum since they suffer several inconsistencies like the discrepancy between micro-rationality and macro-coherence, cognitive bias, and the publicness of financial stability. The viability of market economies depends on the sustainability of financial operations that requires specific public action aimed at systemic stability. In order to prevent the catastrophic consequences of financialization, financial regulation must be decommodified and financial stability must be handled as a common good.

Financial liberalization during the Modi government: Political and economic implications

ABSTRACT Financial liberalization has been a gradual, calibrated and uneven process in India. Since the early 90s, Indian financial system has been transformed in accordance with a market-led economic strategy aiming to attract foreign investments and prepare its integration into the international financial circuits, through institutional changes, regulatory easing, public monopolies ending, etc. A few years after the 2008 global financial crisis, during the Modi government, the financial liberalization process has been significantly renovated and reinforced. In addition, old and new challenges have been (re)emerged, and domestic and external factors also have had considerable impacts by unveiling and aggravating systemic fragilities. In this context, the objective of this article is to analyze the financial deregulation process and its political and economic implications for India in the course of Modi’s first government, in view of the foreign investments, the banking system, the insurance sector and the monetary policy.

Les politiques monétaires à l'épreuve de la libéralisation financière

Cet article se propose de retracer brièvement l’histoire des politiques monétaires depuis l’après-guerre pour mettre en perspective et faire ressortir l’incidence du processus de libéralisation financière sur ces politiques. On observe en effet qu’à partir des années 1980 la plupart des pays avancés ont adopté un même modèle de « central banking » concentrant l’action des autorités monétaires sur l’objectif de stabilité des prix et réduisant leur domaine et leurs instruments d’intervention. On montre que la négligence de l’objectif de stabilité financière a remis en cause, après la crise de 2007, le modèle en question et peut-être aussi le processus de libéralisation. Classification JEL : E50, E52, E58, G01.

Bank efficiency in Vietnam: Do scale expansion strategies and non‐performing loans matter?

AbstractIn Vietnam, following the process of financial liberalization, the rapid banking expansion has resulted in structural frangibility and bad debt proliferation with negative implication for bank performance. This is the first comprehensive study that evaluates the performance of the Vietnamese banking system at the start of the Global Financial Crisis in 2008 up to 2016. We show that the Vietnamese banking system experienced a downward trend in technical efficiency over the liberalization period. However, there persists an efficiency gap among banks with different ownership structure, suggesting that privatization matters for performance improvement. One of the major contributions is the analysis of the impact of non‐performing loans on bank performance. We argue that this category of loans and bank size have nonlinear effects on the estimated efficiency levels. Medium‐sized banks are more efficient than big and small banks. This finding implies that the ongoing restructuring scheme pushing banks' scale expansion via capital build‐up should be carefully taken into consideration.

A comparative analysis of the financial liberalization in Turkey and Brazil

The objective of this study is to explain the financial liberalization processes in Turkey and Brazil, to analyze the external financial liberalization processes and the financial integration indices and to compare the developments in the financial integration indices of Turkey and Brazil during the period 1980-2013. Our analysis revealed that, on the one hand, Brazil has continued its external liberalization process since the 1990s, but on the other hand, Brazil used two main tools to manage the capital flows, namely, capital controls and liberalization of capital outflows. In contrast, Turkey did not employ these tools following liberalization of the capital account.

The Impact of Foreign Bank Entry on Chinese Banks and Financial Liberalization: Recent Evidence

Opening the market to foreign investors is an action which the Chinese government will take under the pressure of economic globalization. However, the impact on domestic firms and market needs to be investigated. This study uses disaggregate measures (foreign exposure index) to analyze how the entry of foreign banks affects domestic banks and the financial markets unlike previous studies which tend to employ aggregate measures (foreign banks number and foreign bank assets share). The results show that the entry of foreign banks has a significantly positive impact on the performance of domestic banks, which is in favor of the process of domestic financial liberalization.

International financial integration and income inequality in a stochastically growing economy

We employ a stochastic growth model to study the impact of international financial globalization on income inequality. A key element is that financial frictions facing the economy pertain to both lending and borrowing abroad, and the process of financial liberalization is specified in terms of reducing these frictions. We emphasize two key channels through which liberalization affects inequality. The first is by reducing the costs of investing and borrowing abroad. Since these activities favor the wealthy, they tend to increase inequality. But, in addition, these two forms of liberalization have sharply contrasting effects on domestic activity causing contrasting impacts on inequality. Numerical simulations suggest that income inequality is more sensitive to financial liberalization that favors foreign investment than if it is directed to reducing foreign borrowing costs. The simulations also suggest that the overall liberalization that occurred during 1970–2015, accounted for a significant fraction of the increase in income inequality experienced over that period. The main findings are broadly supported by the empirical evidence using the most recent data for a sample of 96 countries for the period 1970–2015.

Financial Sector Development in Nigeria: Do Financial Reform, Output Size and Resource Dependence Matter?

The study examined the determinants of financial sector development in Nigeria in an error correction modelling framework, and with OLS for robustness checks, using data from 1980 to 2017. The results show that, banking sector reform, gross capital formation, government expenditure, interest rate spread, output size and trade openness were significant determinants of financial sector development in both the short- and long run. Proxy for economic misery was only significant in the ECM equation, while literacy and human development metric was significant in the long-run equation. Natural resource dependence, proxy by ratio of natural resource rent to GDP, was negatively related to financial sector development in Nigeria, though the coefficient was not significant at conventional levels. Economic misery, interest rate spread and inflation were observed to undermine financial development in Nigeria. The study recommends the continuation of the process of financial liberalization because of its immerse benefits of promoting competition amongst financial institutions with attendant positive effects of reducing interest rate gap. Domestic output, measured by the real GDP, should be enhanced with appropriate stabilising policy, whether fiscal or monetary policy. Additionally, efforts should be enhanced to limit the effects of macroeconomic instability on financial sector development. Lastly, the study recommends efficient management of natural resources to enjoy a non-declining contribution to the development of an inclusive financial system in Nigeria.

Competitiveness Enhancement of International Financial Centres

In recent years, international financial centres have become one of the most important elements of the international financial system. Increasing globalization of the world economy raises the role and influence of international financial centres (IFC) due to extending scope of activities of IFC that currently includes financial markets, international financial and lending relations, insurance, etc.Financial centres make a substantial contribution to the overall economic development and growth of the country. The establishment and development of financial centres is a quite complex and complicated process that combines various historical, geographic, social, economic and political factors.The establishment of international financial centres is related to financial liberalization processes as well as globalization of the financial market. According to the history of financial centres, a number of factors contribute to their establishment and development: geographic location, multicultural factors, liberal legislation, stimulating tax and customs policies, immigration legislation, competitive costs of financial services, etc. However, it is not always that financial centres are established in places with favourable economic, political and social factors. It requires both a combination and interaction of different factors, as well as political will and success.The aim of the paper is basing on the examination of the factors influencing establishment of IFC, to analyze the directions of the competitiveness enhancement of Riga International Financial Centre by identifying its potential niche.The following research methods have been used in the paper: generally accepted quantitative and qualitative methods of economic research, including comparative analysis and synthesis, graphic methods, expert methods, SWOT analysis.

O BUFFER DE CAPITAL CONTRACÍCLICO DE BASILEIA III: UMA AVALIAÇÃO

A regulação e supervisão do sistema financeiro tem sido recentemente um dos motivos de apreensão por parte das principais autoridades econômicas mundiais. A globalização, o processo de liberalização financeira e a consequente interconexão econômica entre países aumentaram o risco sistêmico, colocando a necessidade de marco regulatório e fiscalização mais eficientes. Assim, com a eclosão da crise norte-americana em 2008, o G-20 começou a atuar de forma mais ativa em prol da manutenção da higidez do sistema financeiro mundial. Para os bancos, o G-20 instruiu as principais instituições reguladoras como o Fundo Monetário Internacional (FMI), o Conselho de Estabilidade Financeira e o Comitê de Basileia (BCBS, sigla em inglês) a desenvolverem recomendações a fim de se solucionar o considerado principal problema da regulação dos mercados: o fato do setor bancário ter um comportamento comprovadamente pró-cíclico. Diante de tal cenário, em dezembro de 2009, o Comitê publicou um documento que considerou uma série de medidas a fim de solucionar tal problema, entre estas estava a inclusão do buffer de capital contracíclico do novo marco regulatório proposto pelo Comitê (Basileia III). O objetivo do presente artigo é avaliar se a proposta de buffer contracíclico feito em Basileia III dá conta da pró-ciclicidade do setor, em particular no caso brasileiro.

Timeseries Analysis of the Financial Liberalization and Pre-Crisis Indicators in Turkish Economy

<p><em>In our study, the selected financial liberalization and pre-crisis indicators which is inspired by the </em><em>work of Kaminsky, Lizondo and Reinhart known as KLR approach is analyzed. For Turkish economy, </em><em>the completion of the financial liberalization process in the time interval after 1989, the effects of shock, </em><em>causality relationship and interact with each of these indicators is surveyed through the VAR model </em><em>and Toda-Yamamoto test. The purpose of this study to show that financial liberalization indicators of</em><br /><em>hot money movements, real interest rates and credit growth triggered the crisis which were </em><em>experienced in Turkey after 1989 by adversely effecting the pre-crisis indicators. In addition to this </em><em>purpose, the most effective indicators of financial liberalization on pre-crisis indicators will be </em><em>determined for Turkish economy. According to VAR model and Toda-Yamamoto causality test, the </em><em>negative impact on the pre-crisis indicators, description of these indicators percentage and the </em><em>causality relationship of hot money movements and real interest rates are more than the credit growth. </em><em>The results will give ideas on policy makers in Turkey about the effectiveness of the financial </em><em>liberalization in economic crises.</em></p>

Impact of domestic financial liberalization on economic growth in Pakistan

This paper attempts to investigate the domestic components of the financial liberalization process in Pakistan and develops an index of domestic financial liberalization capturing the important dimensions of reform process. Employing the multivariate co-integration technique and error-correction mechanism, the results indicate a positive impact of the index on economic growth in the long run, while its short run impact is found to be negative. Empirical findings highlight the importance of further financial deepening and financial intermediation, in a conducive environment, that are essential components to successfully implement reforms for growth stimulation.

To liberate or to regulate: balanced approach to bank-oriented financial system transformation in developing countries

A stable, transparent financial system inspires confidence among investors and supports the overall economic growth. Inflexible regulation tends to slow down economic progress, making countries less attractive to investors. Economies with bank-oriented financial systems tend to be less attractive to investors, so their long-term goal is to demonstrate flexibility through liberalization, attracting new investors and ensuring survival in highly competitive and unforgiving global conditions. Liberalization success is even more essential for developing countries and their efforts to open the borders for capital flows and attract new investments. While financial liberalization affects all sectors of the economy and directly influences growth, it does not guaranty it. The removal of financial restrictions could affect capital distribution, increase volatility, create challenges for banks, etc. To support the liberalization efforts, it is very important to understand the nature of banking business, criticality of transparent and effective regulatory framework, as well as the expectations of potential investors. The main goal of this paper is to discuss the process of financial liberalization in developing countries and motivate the policy makers to consider available lessons when creating their balanced approach to financial (de)regulation processes towards financial development and integration in the global financial landscape. Keywords: financial liberalization, financial regulation, economic development, developing countries. JEL Classification: G18, G21, G28

Trickle-down consumption, financial deregulation, inequality, and indebtedness

Over the last 30 years the U.S. experienced a surge in income inequality coupled with increasing levels of borrowing. We model an OLG economy populated by two types of household that care about how their consumption compares to that of their peers. In this framework individual debt-to-income ratios decrease with income, increases in consumption of rich households lead to increases in consumption of the rest, and aggregate borrowing increases with income inequality. We calibrate our model to evaluate the welfare implications of the process of financial liberalization that began in the 1980s. Our analysis suggests that some of the financial developments that lead to the recent expansion of credit may have decreased, rather than increased, welfare.

TÜRKİYE’DE BANKA KREDİ KANALININ İŞLEYİŞİNİ 2001 KRİZİ SONRASINDA YENİDEN DEĞERLENDİRME: AMPİRİK ANALİZ

The orientation of world economy to financial liberalization process since 1980’s caused progress in financial markets. The progress in financial markets has raised the importance of bank lending channel which is one of the monetary transmission channels. The efficient functioning of bank lending channel depends on unsubstitution of banking credits and securities in terms of firms and firm’s dependence on banks as the source of external financing. This study aims to analyse the functioning of bank lending channel after 2001 crisis period. In this framework, Zivot-Andrews unit root test; allowing one structural break and vector auto regression method (VAR) are used with the help of monthly data for the term 2003:01 and 2015:10. Empirical findings show that in case of a monetary policy shock, banking deposits, banking credits, banking securities and industrial production give reaction with a decrease. According to the findings, it can be stated that banks compensate the decrease in credits with selling securities, hence bank lending channel operates partially.

Relationship between Financial Liberalization and Economic Growth in Emerging Economies: The Case of Vietnam

This paper examines the process of financial liberalization in Vietnam over the period from 1993 to 2013. On adopting Vector Error Correction Model (VECM), the results suggest that there is a long-term relation between economic growth and financial liberalization, in which the financial market liberalization and financial services liberalization provide better support during the growth of Vietnam’s economy. In addition, using various techniques including Granger causality test, impulse response analysis, and variance decomposition, the paper also clarifies the motives for financial liberalization from the process of short-term financial development and economic growth in the country.

Efficiency Assessment Parameters of Public Sector Banks in India

In today’s complex and more competitive banking structure and environment, only efficient banks will survive. This has become more significant in view of the increased pace of globalization and liberalization more particularly after 1991 when the financial liberalization process was initiated in India followed by more stress on globalization in 2000. The consolidation of the banks has been receiving attention of the government and the central bank of the country. However, there remain some practical aspects which are hindrances to this process. In this article an attempt has been made to analyze public sector banks’ efficiency though the scaling technique, as prescribed efficiency indicators of banks while keeping in view the size of the bank. It is observed during the analysis that only a few of the banks are close to high efficiency and rest lie on a satisfactory efficiency level. In addition, to assess the degree of correlation among various efficiency parameters, the Statistical Package for the Social Sciences (SPSS) technique has been used for measuring the efficiency of banks in a more realistic manner. It was further observed that there is a significant relation among return on assets (ROAs), spread and profit per employee.