Growth Effects Of Financial Liberalization Reform

Financial liberalization always be a hot issue in Developing Economics, in the early days, Economists believed that Financial liberalization can accelerate economics growth because it stimulating saving and improving efficiency. Financial liberalization was supported by many econometric tests. However the theory was challenged by many different theories such as the theory of financial constrains and credit ration theory in asymmetry information.The literature tend to focus on just one aspect of the financial liberalization, Actually financial liberalization is a synthetically concept. Meanwhile the literature usually confused the financial liberalization and financial deepen. The marginal academic contribution of this paper is it constructed a China financial liberalization index in a synthetically way and retest the macroeconomic effect of financial liberalization.The paper reviews the literature of financial liberalization first and then constructs the liberalization index by PCA and Summing methods. The econometric works which employ this new index find no correlation between financial liberalization index and GDP growth rate; meanwhile econometric works can't find enough evidence that financial liberalization reform can boost the saving rate. However the result match with economic background well.