Financial Liberalization in a Small Open Economy

33 Pages Posted: 18 Aug 2006

See all articles by Jürgen von Hagen

Jürgen von Hagen

University of Bonn - Institute of Economic Policy; Centre for Economic Policy Research (CEPR)

Haiping Zhang

University of Bonn - Center for European Integration Studies (ZEI)

Date Written: August 2006

Abstract

We analyze the long-run and short-run implications of financial liberalization in a small open economy. 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 benefit from financial liberalization during the transitional process of deregulation. Finally, a gradual implementation helps achieve a smooth transition.

Keywords: financial frictions, financial liberalization, foreign borrowing, macroeconomic

JEL Classification: E32, E44, F34, F41

Suggested Citation

von Hagen, Jürgen and Zhang, Haiping, Financial Liberalization in a Small Open Economy (August 2006). CESifo Working Paper Series No. 1771, Available at SSRN: https://ssrn.com/abstract=924731 or http://dx.doi.org/10.2139/ssrn.924731

Jürgen Von Hagen

University of Bonn - Institute of Economic Policy ( email )

Adenauerallee 24
D-53113 Bonn
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Haiping Zhang (Contact Author)

University of Bonn - Center for European Integration Studies (ZEI) ( email )

Regina-Pacis-Weg 3
Postfach 2220
D-53012 Bonn
Germany

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