Transactions on Data Analysis in Social Science

Transactions on Data Analysis in Social Science

The Impact of Financial Liberalization on Financial Development: A Study of Selected High- and Middle-Income Countries

Document Type : Original Article

Authors
A. M. Tehranchian 1
S. Hosseinnia Chafjiri 2
S. M. Khabbaz 2
1 Professor, Department of Economics, Faculty of Economic and Administrative Sciences, University of Mazandaran, Babolsar, Iran
2 M.A. Student in Economics, University of Mazandaran, Babolsar, Iran
10.47176/TDASS.2024.231
Abstract
The present study examines the relationship between financial liberalization and financial development by analyzing a balanced panel of 20 selected countries, consisting of 10 high-income and 10 middle-income economies. Financial liberalization, which refers to the removal or relaxation of restrictions on financial markets and capital flows, has been widely recognized as a key driver of economic efficiency, resource allocation, and investment growth. However, its impact on financial development may vary depending on a country’s institutional capacity, economic structure, and income level. Using annual data from 2013 to 2022, the study applies advanced panel data econometric techniques, including fixed-effects and random-effects estimations, to assess the magnitude and direction of this relationship. The empirical findings reveal that financial liberalization exerts a positive and statistically significant influence on financial development in both income groups, supporting the hypothesis that greater openness in financial markets fosters deeper, more efficient financial systems. Notably, the effect is more substantial in high-income countries, likely due to stronger institutional frameworks, better regulatory oversight, and higher absorptive capacity. These results underscore the importance of complementary reforms, particularly in middle-income economies, to maximize the benefits of financial liberalization while mitigating potential risks.
Keywords
Financial Liberalization
Financial Development
Financial System
Panel Data
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Transactions on Data Analysis in Social Science
Volume 6, Issue 4
Autumn 2024
Pages 231-244

  • Receive Date 20 August 2024
  • Revise Date 03 October 2024
  • Accept Date 12 December 2024