Does Financial Liberalization Influence Saving, Investment and Economic Growth? Evidence from 25 Emerging Market Economies, 1973-1996

Abstract

This paper aims to investigate the relationship between financial liberalization on the one hand and saving, investment and economic growth on the other hand, using a new dataset for measuring financial liberalization for a sample of 25 developing economies over the period 1973-96. We find no evidence that financial liberalization affects domestic saving and total investment (although there are some signs to believe that liberalization may actually reduce rather than increase domestic saving), whereas it is positively associated with private investment, as well as with per capita GDP growth. We find a negative relationship between financial liberalization and public investment. These results suggest that financial liberalization leads to a substitution from public to private investment, which may contribute to higher economic growth.

Financial liberalisation and economic growth in Nigeria: an ARDL-bounds testing approach

“…This topic is urgent, as most of the previous research in this area for Nigeria has yielded inconclusive findings. Some of the authors whose findings fall in this category are Deidda and Fattouh (2002), Schmidt-Hebbel and Serven (2002) and Hermes and Lensink (2005), as well as Ogunmuyiwa and Ekone (2010), among others.…”

“…For example, Hermes and Lensink (2005) investigated the relationship between financial liberalisation and economic growth on the one hand; and between saving, investment and economic growth, on the other hand. Using a new dataset for measuring financial liberalisation and a data sample from 25 developing economies over the period from 1973 to 1996, they found no evidence that financial liberalisation affects domestic saving and total investment; whereas it is positively associated with private investment, as well as with per capita GDP growth.…”

Has Financial Liberalisation Promoted Economic Growth in Nigeria? Evidence from Auto-Regressive Distributed Lag (ARDL) Approach

“…Even so, most of the studies focused on the quantity effects of liberalization, while others concentrated on the quality effects of liberalization. These studies use firmlevel, as well as cross-country data (Hermes and Lensink, 2005). Some studies also focused more on the use of a bivariate causality test to assess the causal relationship between financial development and economic growth.…”

“…However, estimation of the short-run dynamics was stable, as shown by CUSUMQ test. Hermes and Lensink (2005) investigated the relationship between financial liberalization on the one hand and saving, investment and economic growth on the other hand, for a sample of 25 developing economies over the period 1973-96. They found that financial liberalization is positively associated with private investment, as well as with per capita GDP growth.…”

The impact of financial liberalization on bank efficiency: evidence from Latin America and Asia

“…The elimination of government control and intervention aims at restoring and strengthening the price mechanism, as well as improving the conditions for market competition (Hermes and Lensink, 2008). This, it is argued, will Competitive pressure stimulates banks to become more efficient by reducing overhead costs, improving on overall bank management, improving risk management, and offering new financial instruments and services (Denizer et al, 2000).…”