Welfare Gains from Financial Liberalization

Robert Townsend and Kenichi Ueda. International Economic Review, forthcoming.

In this paper, Townsend and Ueda address the controversial issue of financial liberalization. Using data from Thailand from 1976 to 1996, the authors find sizable welfare gains from liberalization, though the gain in economic growth is ambiguous. They take the view that financial liberalization is a government policy that alters the path of financial deepening, while financial deepening is endogenously chosen by agents given a policy and occurs in transition towards a distant steady state.