The Impact of Financial Liberalization Reform on Economic Growth: an Empirical Survey on China

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Submitted By bianlin1987
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The impact of financial liberalization reform on economic growth: an empirical survey on China
Introduction: In the past few decades, financial liberalization would be a main driving force and trend on countries’ financial reform. It aims to eliminate restrictions on financial markets and financial institutions, both domestically and internationally (Financial Liberalization). Thus, as a benefit of financial liberalization, a surge of competition and innovation was awakened in the US and rapid spread to other advanced economies’ financial market between 1970s and 1980s. As a result, banks had become bigger and financial intermediation was cheaper (Anon. 2007). However, an excessive freedom could encourage financial institutions to take unnecessary risks on lending business which would lead to financial crisis. The current great economic recession was caused by a new financial instrument crisis, subprime crisis which started from developed economies which had high level of financial liberalization. Therefore, to some extent, financial liberalization is risky in the process of financial reform.
China had conducted its financial reform for more than 30 years. It had benefited from financial liberalization to accelerate capital accumulation. Now, it has the world’s most valuable banks and has the largest foreign exchange reserve. But, in general, Huang et al. (2010) stated that China’s financial reform is still focus long on quantitative growth but short on qualitative growth in financial development. To some extent, the repression has impeded the development of financial sector. In this case, this dissertation will attempt to analyze impact of previous reform in China and look forward it.
Research Question: Is it necessary to promote financial liberalization reform in China? What were the financial liberalization reform’s benefits and risks to Chinese economy in the…...

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