Who benefits from financial liberalization? Evidence from advanced and emerging market economies

Abstract

In recent decades most countries have implemented significant reforms to foster financial liberalization. This article examines to what extent these reforms have benefited advanced economies and emerging market economies. We focus on four groups of countries: the G-7, other European countries, Latin America and East Asia over the period 1973-2006. We find evidence supporting the hypothesis that the different forms of financial liberalization affected growth differently in the four groups of countries. The main finding is that the benefits of financial liberalization are more important for advanced economies. In contrast, financial liberalization in emerging market economies has a weak positive impact on growth when its scope is limited, whereas full liberalization has been associated with slower economic growth.financial sectors liberalization, economic growth, advanced and emerging economies,

The Dynamics of Revenue Diversification and Efficiency of Banks in India

“…With respect to revenue diversification as a measure of the share of non-interest income of a bank in its total income portfolio, under the intermediation approach, for both TE and PTE, our results in the context of the Indian banking sector favour the conglomeration hypothesis which asserts that banks that diversify their income portfolios more during periods of crisis are in a stronger position to be able to reap the benefits of higher efficiency gains as compared with those that focus on a single stream of income (Calomiris, 1998; Gallo, Apilado, & Kolari, 1996; Gambacorta & Marques-Ibanez, 2011; Meador, Ryan, & Schellhorn, 2000; RBI, 2008;). In line with the studies of Gamra and Plihon (2011) and Meslier, Tacneng and Tarazi (2014), we find support in favour of the fact that greater competition in financial markets leads to increasing need for banks to diversify. Banks with multiple diversification strategies can produce information that enhances their loan-making by activities such as securities underwriting, brokerage and other trading services.…”

“…This reflects a substantial decline in private sector credit and leads to a disproportionate strategy to minimize systemic risks. In addition, banks with a considerable decline in profitability tend to get rid of their loans and search for new income sources such as fee-based services and government securities (Gamra & Plihon, 2011). In the meantime, with the government intervention for guaranteeing the stability of the banking system, state-owned banks are constrained to expand their financial product lines, whereas foreign-owned banks through their changes in products and services have a greater proportion of non-interest income (Pennathur, Subrahmanyam, & Vishwasrao, 2012).…”

“…As suggested by the studies of Gamra and Plihon (2011) and Meslier, Tacneng and Tarazi (2014), greater competition in financial markets leads to an increasing need for banks to diversify. Banks with various diversification strategies can produce information that enhances their loan-making by activities such as securities underwriting, brokerage and other trading services.…”

Determinants of income diversification: empirical evidence from Indian banks

“…Another important factor that influences diversification decisions is the capital ratio (book value of equity over total assets) as a proxy of financial leverage (Ismail et al, 2015). Equity capital acts as a buffer against adverse shocks when the value of assets declines, reducing IJLMA 66,2 the probability of financial distress (Gamra and Plihon, 2011;Ammar and Boughrara, 2019b). A high capitalization indicates a high degree of solvability, which encourages banks to use innovative business models and develop new activities that can raise non-interest incomes, thus explaining a positive relationship between capital ratio and non-traditional activities (Rogers and Sinkey, 1999;Kick and Busch, 2009;Nguyen et al, 2012;Senyo et al, 2015;Hahm, 2017;Meng et al, 2018;Cuong et al, 2020).…”

Domestic financial liberalization and economic growth nexus: the role of corruption

“…Using the autoregressive distributed lag (ARDL) bound test technique and endogenous growth theory together with McKinnon (1973) and Shaw (1973) hypothesis, the outcome reveals that financial liberalization accelerates growth. Similarly, Gamra and Plihon (2010) analysed the benefits of financial deregulation in emerging and advanced nations. Using the generalized method of moments (GMM) approach and a panel of Latin America, other EU countries, East Asia and G-7 spanning over 1973 to 2006.…”