Evaluation of financial liberalization : a general equilibrium model with constrained occupation choice

By X. Giné, Robert M. Townsend. 2004

260 citations recorded by the source corpus.

The objective of this paper is to assess both the aggregate growth effects and the distributional consequences of financial liberalization as observed in Thailand from 1976 to 1996. A general equilibrium occupational choice model with two sectors, one without intermediation, and the other with borrowing and lending, is taken to Thai data. Key parameters of the production technology and the distribution of entrepreneurial talent are estimated by maximizing the likelihood of transition into business given initial wealth as observed in two distinct datasets. Other parameters of the model are calibrated to try to match the two decades of growth as well as observed changes in inequality, labor share, savings, and the number of entrepreneurs. Without an expansion in the size of the intermediated sector, Thailand would have evolved very differently, namely, with a drastically lower growth rate, high residual subsistence sector, non-increasing wages, but lower inequality. The financial liberalization brings welfare gains and losses to different subsets of the population. Primary winners are talented would-be entrepreneurs who lack credit and cannot otherwise go into business (or invest little capital). Mean gains for these winners range from 17 to 34 percent of observed overall average household income. But liberalization also induces greater demand by entrepreneurs for workers resulting in increases in the wage and lower profits of relatively rich entrepreneurs of the same order of magnitude as the observed overall average income of firm owners. Foreign capital has no significant impact on growth or the distribution of observed income.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/96da73d9532c50919aa12504a6339f3367342449

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Citations in the corpus

Microsimulation as a tool for evaluating redistribution policies (2006, background): “For instance, Townsend (2002), Townsend and Ueda (2003), Giné and Townsend (2004) concentrate on saving/investment behaviour under uncertainty and in different financial market environments, whereas Heckman, Lochner and Taber (1998) focus on schooling and training behaviour.”
Access to Financial Services (2009, background): “…(using micro-data for Thailand and taking into account labor market effects) suggest that ﬁnance’s main impact on income inequality comes not through broadening access to credit, but through higher wages and including a larger share of the population in the formal economy (Gine and Townsend 2004).”
Financial Frictions and the Persistence of History: A Quantitative Exploration (2010, unknown): “(2001), Galor and Zeira (1993) , Greenwood and Jovanovic (1990), Lloyd-Ellis and Bernhardt (2000), and Piketty (1997).”
Bank Financing for SMEs – Lessons from the Literature (2013, unknown): “Gine and Townsend (2004) show for Thailand that financial liberalization has contributed to migration of subsistence agricultural workers into urban salaried jobs.”
Misallocation of Capital in a Model of Endogenous Financial Intermediation and Insurance (2011, unknown): “Rajan and Zingales (2003) argue and Gine and Townsend (2004) show on Thai data that in an economy with underdeveloped financial markets, incumbent firms enjoy some rents in the markets they operate in, but they also end up appropriating most of the returns from new ventures.”
Financial development and income inequality: a panel data approach (2011, background): “Instead, Giné and Townsend (2004), studying inequality in Thailand, find that less expansion in the financial sector would have led to lower inequality.”
Entrepreneurship and Financial Frictions: A Macrodevelopment Perspective (2015, methodology): “First, there is a great variety of entrepreneurs, who differ considerably in the productivity of their enterprises and the optimal scale of the technologies or sectors in which they operate.”
Can Basic Entrepreneurship Transform the Economic Lives of the Poor? (2013, background): “…to capital enables individuals to alter their occupational choices and exit poverty [Banerjee and Newman 1993, Besley 1995, Galor and Zeira 1993, Gine and Townsend 2004, Aghion et al. 2005, Jeong and Townsend 2008, Karlan and Morduch 2010, Townsend 2011, Buera, Kaboski and Shin 2012] and how…”
Finance and Employment (2012, unknown): “Gine and Townsend (2004) show for the case of Thailand that financial deepening led to reallocation of large parts of the population from agricultural subsistence to the urban salaried sector, over the period 1976–1996, and thus contributed to the substantial reduction in poverty that Thailand…”
Access to capital in rural Thailand: an estimated model of formal versus informal credit (2005, unknown): “First, in the spirit of Townsend (1978, 1983) and Greenwood and Jovanovic (1990), access to credit is modelled explicitly by assuming that a fixed cost must be foregone in order to obtain external credit.”
FINANCE AND DEVELOPMENT: A TALE OF TWO SECTORS (2011, unknown): “…Aghion and Bolton (1997), Piketty (1997), and Lloyd-Ellis and Bernhardt (2000); and relatively fewer quantitatively-oriented macro studies by: Giné and Townsend (2004), Jeong and Townsend (2007), Amaral and Quintin (2005), and Buera and Shin (2007).4 This paper is most closely related and…”
Money or ideas ? a field experiment on constraints to entrepreneurship in rural Pakistan (2014, background): “1 See Banerjee and Newman, 1993; King and Levine, 1993; Giné and Townsend, 2004 or Buera, Kaboski and Shin, 2011, for examples of macro models of entrepreneurship with financial imperfections.”