Financial Liberalization, Investment and Growth - The Role of Public Capital

Project: Research

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This project aims at exploring, both theoretically and empirically, the relationship between financial liberalization and investment with special emphasis on the role of public investment. It examines a contemporary world-wide phenomenon, primarily among developing countries, which suggests that financial reforms have not been followed by discernible increases in the overall rate of investment, although economic growth has been stepped up. It is argued that the impact of financial liberalization on overall rate of investment crucially depends on the ensuing changes in public investment. To the extent that financial liberalization is accompanied by budgetary shortfalls for the government, either as a result or a component of the reform, the analysis offers a potential explanation to the aforementioned puzzle. In this context, it is also argued that the observed increase in economic growth following financial reforms is most likely due to productivity gains. As cases of special interest, part of our empirical study will focus on China and India.


Project number9041174
Grant typeGRF
Effective start/end date1/01/0724/09/10