Welfare Gain of Financial Liberalization

Financial liberalization is a controversial issue. One of the reasons is that many empirical studies report conflicting views. So far, negligible effects were found in savings and lending, while positive effects in allocating capital efficiently. However, these regression based studies are not suitable to identify the true benefit, that is, welfare gain of the financial liberalization. We compute the welfare gain of financial liberalization, by calibrating a canonical model of financial deepening and growth with actual Thai data. We find a sizable gain of financial liberalization. We also identify some disparities between de facto effects and de jure changes of financial sector policies