The Political Economy of Trade-Financial Liberalization and Financial Underdevelopment: A perspective from China

Morgan, Horatio M. (2013): The Political Economy of Trade-Financial Liberalization and Financial Underdevelopment: A perspective from China.

Abstract

Although financial development may facilitate economic growth over the long term, financial underdevelopment remains a salient feature of even leading emerging or transition economies. In principle, openness to both international trade and finance may weaken resistance to major financial reforms; however, the apparent failure to consolidate political support for such reforms in practice is not completely understood. This paper develops a simple model of the political economy of trade-financial liberalization that offers insights into this phenomenon. When applied to China, it not only facilitates a better understanding of its approach to financial integration in the global economy and why its relatively fragile state-bank dominated financial system has persisted; but more generally, it raises the question of whether limited de facto political competition in the domestic electoral system may be a binding constraint on the quantity and quality of the policies required to foster financial development.

• Item Type: MPRA Paper
• Language: English
• Keywords: China; Economic Growth; Financial Openness; Financial Development; Political Economy; Trade Openness.
• Subjects: F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O15 - Human Resources ; Human Development ; Income Distribution ; Migration; O - Economic Development, Innovation, Technological Change, and Growth > O2 - Development Planning and Policy > O24 - Trade Policy ; Factor Movement Policy ; Foreign Exchange Policy; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth; P - Economic Systems > P2 - Socialist Systems and Transitional Economies

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