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Welfare and distributional impacts of financial liberalization in an open economy : lessons from a multi-sectoral dynamic CGE model for Nepal

Bhattarai, Keshab

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Abstract

By equalizing rates of return across sectors, financial liberalization improves efficiency and equalizes the distribution of income. Efficiency gained in the allocation of resources increases capital usage more in previously heavily repressed sectors such as agriculture and textile, allowing up to a 19 percent expansion in production and employment. The savings and investment responses, degree of factor substitutions, are higher in the complete liberalization than in partial or piecemeal liberalization. Income, consumption, utility and overall welfare of rural and urban households increase. Liberalization is not effective if savings are used in accumulations of unproductive assets i.e. gold, jewelry, urban land, and foreign exchange. Financial liberalization improves the distribution of income by raising the wage rate of rural labour than for urban labour as rural labour-intensive sectors invest more with increased access to financial institutions and demand more labour to complement additional capital employed in these sectors.

Journal Article Type Article
Publication Date Dec 23, 2016
Journal International business research
Print ISSN 1913-9004
Electronic ISSN 1913-9012
Publisher Canadian Center of Science and Education
Peer Reviewed Peer Reviewed
Volume 10
Issue 1
Pages 181-198
APA6 Citation Bhattarai, K. (2016). Welfare and distributional impacts of financial liberalization in an open economy : lessons from a multi-sectoral dynamic CGE model for Nepal. International Business Research, 10(1), 181-198. doi:10.5539/ibr.v10n1p181
DOI https://doi.org/10.5539/ibr.v10n1p181
Keywords Financial intermediation, Development, Dynamic CGE model, Nepal, Growth, Redistribution
Publisher URL http://www.ccsenet.org/journal/index.php/ibr/article/view/65297
Additional Information Copy of article first published in: International business research, 2017, v.10, issue 1.

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