Open AccessFinancial Liberalization or Financial Development? Tests Using Delphi-Based Index Ofliberalization
Author(s) -
Nicolaas Groenewold,
Peng Jian-gang,
LI Guan-zheng,
Xiangmei Fan
Publication year - 2009
Publication title -
s and p : sound and pictures
Language(s) - English
Resource type - Journals
ISSN - 1675-722X
DOI - 10.32890/ijbf2009.6.1.8384
Subject(s) - index (typography) , economics , liberalization , finance , indirect finance , financial sector development , financial analysis , endogeneity , nexus (standard) , financial market , financial ratio , financial econometrics , financial instrument , financial system , financial sector , econometrics , market economy , world wide web , computer science , embedded system
Most empirical analysis of the finance-growth nexus has used measures of financial development such as the ratio or monetary of financial assets to GDP to measure financial development. We argue that from a policy perspective measures of financial liberalisation or reform are of greater interest and, besides, are less likely to be beset by endogeneity problems which have dogged the empirical growth literature. We develop such a measure by combining the ‘Delphi’ method and principal components analysis to construct an index of financial liberalisation for China. Much of China’s financial development has been policy-driven and we could expect to find a distinct difference, at least in timing, between measures of financial reform and financial development. We compare our financial liberalisation index to a number of standard measures of financial development and find that there is pervasive evidence that financial liberalisation Granger-causes financial development but not vice versa.