Munich Personal RePEc Archive

The Effect of Financial Liberalization on the Economic Development Process in case of Inefficient Banking

Nabi, Mahmoud Sami and Rajhi, Taoufik (2002): The Effect of Financial Liberalization on the Economic Development Process in case of Inefficient Banking.

[img]
Preview
PDF
MPRA_paper_24514.pdf

Download (297Kb) | Preview

Abstract

In this essay we develop a stylized model to investigate the role of external financial liberalization in the development process of a small economy. Firstly, we show that there exists an economic development threshold under which the capital account liberalization can not occur. Secondly, we show that in the presence of banking inefficiency, the financial liberalization presents a major risk for the economic development process. Indeed, if the economy is situated in a vulnerability region every bad performance of the investment sector could degenerate in a banking crisis delaying the development process by several periods relatively to the situation of closed economy. Finally, it is also shown that reducing the credit market imperfection decreases the likelihood of a banking crisis.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.