Liberalization In Trade In Financial Services, Financial Development, And Economic Growth

Since the end of 2006, China has entered "the post-WTO-entrance period" and began to fully implement the GATS commitments in services sector, including financial services. What is the economic basis for China and other developing countries to joint the process of liberalization in financial serves trade? This thesis hopes to offer some forceful answer to the above question from specific perspective. The term "trade in financial services" here refers to trade and foreign direct investment in commercial banking services, investment banking services, and insurer services, but not capital account transactions.First, this thesis deals with the historical background of liberalization in financial services trade from institutional perspective. Secondly, this essay analyzes the internal mechanism of growth effects of liberalization in financial services trade by deduction approach. Thirdly, the theoretical hypothesis deducted from the second stage is tested with a set of multinational data. Finally, some policy implications are reached and some policy suggestions are put forward. The data used in this paper mainly come from Eschenbach, Francois and Nitzsche's (2004) multinational data set, which covers 1990s and includes 130 countries all over the world. In empirical research, this dissertation implements parameter estimation and statistical inference with ordinary least square technique for the baseline model before doing sensitivity analysis by expanding the specification of the baseline model or using the instrumental variable estimation instead.By systematic theoretical analysis, this thesis illustrates in detail the causal chain among financial service sector openness, financial sector development, and economic growth. As for empirical research, this paper formally explores the evidence of the causal chain and finds the following results: First, the positive effects of liberalization in financial services trade on financial development are significant statistically and economically. Secondly, liberalization in trade in financial services stimulates economic growth by enhancing financial sector development, which is significant statistically and economically as well. Thirdly, there is some substitution relationship between liberalization in financial services trade and law-and-order tradition in stimulating financial development, that is, for those countries with bad law-and-order tradition, the openness in financial services markets is especially important. Finally, all the empirical results mentioned above are statistically robust.To sum up, this dissertation defines the institutional background of liberalization in financial services trade, clarifies the theoretical mechanism by which liberalization in financial services trade promotes economic growth, and shows empirically that liberalization in financial services trade has statistically and economically significant effects on financial development which in turn promotes economic growth significantly. These results have important policy implications: While domestic financial systems are reformed and consolidated in right way, nations, especially developing nations, should take active part in liberalization in financial services trade to take advantage of the process of current financial globalization and integration.