Credit Market Liberalization Reform Outcomes
This article deals with the process of credit market liberalisation in different countries and the main tools for conducting the reform. The impact of financial liberalisation on economic growth in the most developed countries has been determined. The article represents the basic indicators of econo...
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irk-123456789-1233902017-09-04T03:03:10Z Credit Market Liberalization Reform Outcomes Zukhba, D.S. Shpynova, K.V. Finance This article deals with the process of credit market liberalisation in different countries and the main tools for conducting the reform. The impact of financial liberalisation on economic growth in the most developed countries has been determined. The article represents the basic indicators of economic development in countries with the most developed credit markets. У цій статті розглянуто процес лібералізації кредитних ринків різних країн та основні інструменти проведення реформи. Відображено вплив фінансової лібералізації на економічне зростання найбільш розвинутих країн. Представлено основні показники економічного розвитку країн із найбільш розвинутими кредитними ринками. В данной статье рассмотрен процесс либерализации кредитных рынков разных стран и основные инструменты проведения реформы. Отображено влияние финансовой либерализации на экономический рост наиболее развитых стран. Представлены основные показатели экономического развития стран с наиболее развитыми кредитными рынками. 2013 Article Credit Market Liberalization Reform Outcomes / D.S. Zukhba, K.V. Shpynova // Економічний вісник Донбасу. — 2013. — № 4 (34). — С. 91–95. — Бібліогр.: 12 назв. — англ. 1817-3772 http://dspace.nbuv.gov.ua/handle/123456789/123390 336.71/73-043.86 en Економічний вісник Донбасу Інститут економіки промисловості НАН України |
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Finance Finance Zukhba, D.S. Shpynova, K.V. Credit Market Liberalization Reform Outcomes Економічний вісник Донбасу |
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This article deals with the process of credit market liberalisation in different countries and the main tools for conducting the reform. The impact of financial liberalisation on economic growth in the most developed countries has been determined. The article represents the basic indicators of economic development in countries with the most developed credit markets. |
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| author |
Zukhba, D.S. Shpynova, K.V. |
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Zukhba, D.S. Shpynova, K.V. |
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Zukhba, D.S. |
| title |
Credit Market Liberalization Reform Outcomes |
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Credit Market Liberalization Reform Outcomes |
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Credit Market Liberalization Reform Outcomes |
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Credit Market Liberalization Reform Outcomes |
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Credit Market Liberalization Reform Outcomes |
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credit market liberalization reform outcomes |
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Інститут економіки промисловості НАН України |
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2013 |
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Finance |
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http://dspace.nbuv.gov.ua/handle/123456789/123390 |
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Credit Market Liberalization Reform Outcomes / D.S. Zukhba, K.V. Shpynova // Економічний вісник Донбасу. — 2013. — № 4 (34). — С. 91–95. — Бібліогр.: 12 назв. — англ. |
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Економічний вісник Донбасу |
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2025-07-08T23:34:19Z |
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2025-07-08T23:34:19Z |
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| fulltext |
91
Економічний вісник Донбасу № 4 (34), 2013
UDC 336.71/73-043.86
D. S. Zukhba,
PhD (Economics)
K. V. Shpynova,
Donetsk National Technical University
CREDIT MARKET LIBERALIZATION REFORM OUTCOMES
Introduction. Many economists (Kaminsky and
Reinhart, 1999; Bhagwhati, 1998; Gupta et al., 2009;
Quinn and Toyoda, 2009 and others) have long debated
over the effects of financial liberalization on economic
growth. Financial liberalization may have a positive impact
on growth through its effect on efficiency of resources
allocation in economy (quality effect), rather than through
the quantity of mobilized capital (quantity effect). Financial
liberalization is strongly associated with an increase in
the role of market and a reduction in the role of government
in credit allocation. Free access to international capital
markets increases competition in domestic financial
markets. Domestic financial institutions, facing competition
from international players, become reluctant to extend
credit to inefficient producers. Mobile capital forces the
government to maintain macroeconomic prudence,
further reducing the government’s ability to intervene in
the domestic credit market [1]. Thus, the result of the
liberalization of the financial sector and the main feature
of world economy globalization is the international
movement of capital that is implemented in the international
credit market. This market, being the most dynamic
sector of the international market of loan capital, is very
susceptible to changes in the global economic space.
All this makes it important to analyse credit market
liberalisation in order to understand better the reasons
for current economic situation in the world.
Results and analysis. The process of credit market
liberalization was affected by number of factors such as
timing of the reform, initial reform conditions and others,
which led to cross-country differences in credit market.
Building a sound and effective financial system cannot be
achieved overnight, but rather requires a complex of short-
term policy measures, medium-term reform processes and
long-term institution building. Abolishing interest rate
ceilings and floors, eliminating directed credit programs
and imposing transparency requirements are policy reforms
that can be legislated speedily, regulated and implemented,
as the experience in many developed and developing
countries has shown. Other processes can take longer,
such as privatizing government-owned banks and establishing
a system of credit information sharing. Reforming legal
systems and building regulatory and supervisory capacity
are long-term institution building processes [2].
International credit markets were highly integrated
in the 1890s but were disrupted by two World Wars and
the Great Depression. International investment, relative
to output, reached the lowest level during the 1950s and
1960s.
After the first oil shock of 1973, the developed
economies experienced a dramatic decline in their
economic growth and labor productivity growth. Since
the mid-1970s the productivity decline triggered a wide
range of policy responses, including credit market
liberalization (CML) across a wide range of countries.
The CML reforms were initiated in the US, followed by
the UK and other developed economies in the early 1980s
and were imitated by the new democracies and many
developing countries with an extensive set of labor-,
capital- and product-market reforms in 1990s.
Using the strategy proposed by Estevadeordal and
Taylor [10] it is possible to identify 4 distinct categories
of countries:
1. Reformers in the first period – the early reformers
(1975 – 1990): New Zealand etc.
2. Reformers in the second period – the late reformers
(1990 – 2005): Turkey, Australia, South Africa etc.
3. Reformers in both periods – the “marathon”
reformers (1975 – 2005): USA, United Kingdom, Germany,
Canada etc.
4. Non-reformers in both periods: Singapore,
Jordan, Jamaica
Developed and developing countries around the
world liberalized their financial systems, allowing markets
to set interest rates, eliminating control so that capital
could flow freely across borders, and open their doors
to foreign financial firms. However, there were significant
differences in the pace and scale of reform. The given
graph observes the difference of the GDP growth in
various regions of the world.
The financial repression that prevailed in developing
and transition countries in the 1970s and 1980s reflected
a mix of state-led development, nationalism, populism,
politics, and corruption. The financial system was treated
as an instrument of the treasury: governments allocated
credit at below market interest rates, used monetary policy
instruments and state-guaranteed external borrowings to
ensure credit supplies and public sector firms, and
directed part of the resources that had been left to sectors
they favored.
In 1974 – 1975 in the U.S. there was a drop in
production, unemployment, chronic underutilization of
D. S. Zukhba, K. V. Shpynova
92
Економічний вісник Донбасу № 4 (34), 2013
production facilities with a chronic increase in prices.
This phenomenon is called stagflation. At that time the
model of state regulation reduced its strength. According
to the monetary concept, which replaced the neo-
Keynesianism, the government of the US began to focus
on the monetary authorities and use the monetary policy
to achieve sustainable economic growth.
Financial regulations generally fall into two broad
categories [3]:
1. “rate/quantity” regulations on bank deposits and
loans, including ceilings on bank deposit rates and
quatitative measures that have similar effects (credit
ceilings, capital controls, etc.);
2. “powers” regulations governing the extensiveness
of activities of individual financial institutions, which are
authorised to carry out various borrowing and lending
functions, can participate in the payments system, or in
securities underwriting, equities, insurance, etc.
The credit market liberalization reforms were
followed by other developed economies in the early
1980s. The US, the UK and Canada rapidly removed rate/
quantity and powers regulations. While some powers
regulations are still applying, their financial systems may
be described as highly competitive. Japan in 1980s
removed capital control at the beginning of the decade
and gradually introduced market alternatives to regulated
bank deposits throughout the decade. Developments
proceeded more cautiously in France and Italy, with capital
controls being removed only gradually throughout the
1980s and rate/quantity and powers regulations were still
applied fairly extensively in 1990s. While Germany was
one of the first countries to remove rate/quantity
regulations in the 1960s and 1970s, it was relatively slow
to implement “powers” deregulation. As a result,
competition between German banks remained muted, and
short-term financial instruments paying market returns
were readily available as alternatives to bank deposits
throughout the 1970s and 1980s.
Australia, New Zealand and most of the Scandinavian
countries were prominent amongst the smaller economies
that had moved more quickly in the direction of financial
liberalisation in the mid-1980s and 1990s. Others such as
Greece, Portugal and Spain retained better regulated
financial systems.
Before the financial market liberalizations of the late
1980s and early 1990s the peaks and troughs of some
emerging countries (Argentina, Brazil, Mexico, Chile,
Korea, Thailand) were not aligned at all. Furthermore,
they were not aligned with those identifsed for the US.
In fact, all six countries seemed to follow widely different
patterns before 1990. After 1990, a time when these
countries either initiated, or were about to launch their
reforms, individual cycles began to exhibit evident co-
movement. This finding suggests that in the post-reform
period, the emerging markets were becoming significantly
more integrated with each other [4].
1990 marks an important change in economic history
with the start of many market-oriented reforms across a
wide range of economies. The credit market liberalization
that took place in the developing countries in the 1990s
was a part of the general move toward giving markets a
greater role in development. It was also a reaction to
several factors specific to finance: the costs, corruption,
and state-led development. The earliest policy changes
focused generally on interest rates. In many instances
governments raised interest rates to mobilize more
resources needed to finance budget deficits and to enable
the private sector to play a greater role in development.
The countries began to admit foreign currency deposits
to attract offshore funds and foreign currency holdings
into the financial system as well as allow residents legal
access to foreign currency assets.
Countries with better developed financial systems,
i.e. financial markets and institutions that more effectively
directed society’s savings to their most productive use,
experienced faster economic growth. Countries with
higher credit levels to the private sector in relation to
GDP were experiencing higher average annual real GDP
per capita growth rates over the period from 1980 to
2003.
There are a number of channels through which
financial liberalization may affect growth. Foreign
investors, being interested in improved benefits of
diversification, will increase local equity prices permanently
by reducing the capital and increasing investment cost.
If this additional investment is efficient, then economic
growth should increase [5].
Nowadays it is observable that the largest national
credit markets are in the USA, China, Japan, Germany,
France and the United Kingdom.
The following table shows such indexes as: Gross
domestic product (GDP), GDP per capita, Gross national
income (GNI), real GDP growth and the household
disposable income. They identify the level of development
of the economy (Fig. 1 – 3).
Financial liberalization leads to a one percent increase
in annual real per capita GDP growth over a five year
period, and finds this increase statistically significant. This
result is robust to a wide variety of experiments including:
an alternative set of liberalization dates, different groupings
of countries, regional indicator variables, different
weighting matrices for standard errors calculation and
four different time-horizons for measuring economic
growth [6]. In many cases the countries that lagged
behind with their liberalization reforms prior to 1990 but
accelerated their reforms after 1990 had lower per capita
D. S. Zukhba, K. V. Shpynova
93
Економічний вісник Донбасу № 4 (34), 2013
Table 1
The dynamics of the non-state pension funds activity main indicators [10]
Fig. 1. The Great Liberalization and Growth Accelerations
D. S. Zukhba, K. V. Shpynova
94
Економічний вісник Донбасу № 4 (34), 2013
Fig. 2. The Central Banks’ Assets on the Largest Credit Markets
Table 1
Economic indexes in 2010
Countries
Gross domestic
product (GDP)
(Bln USD current
PPPs)
GDP per
capita
(USD current
PPPs)
Gross national
income (GNI)
per capita (USD
current PPPs)
Real GDP
growth
(annual
growth %)
Household
disposable income
(annual growth %)
The US 14582 47024 45567 2.9 0.9
Germany 3071.3 37567 38115 3.6 -1
The UK 2233.9 35917 36427 1.4 1
France 2194.1 33835 34453 1.5 1,8
Japan 4301.9 33772 32896 3.9 …
Australia 915.7 40644 38376 2.6 …
Austria 332.9 39768 39464 2 …
Turkey 1116 15320 … 8.9 …
Fig. 3. The Most Developed Economies (based on the GDP per capita index in the 2010)
0
10000
20000
30000
40000
50000
The U
S
Austr
ali
a
Austr
ia
Germ
an
y
The U
K
Fran
ce
Ja
pan
GDP per capita
D. S. Zukhba, K. V. Shpynova
95
Економічний вісник Донбасу № 4 (34), 2013
GDP levels than the early reformers and the “marathon”
reformers.
Conclusion. CML reforms played a significant role
in credit markets developing as well as the whole
economies. They gave countries an access to larger
amounts of international financial flows, in order to attract
a part of the substantially increased flows of financial
capital to the so-called “emerging markets” since the late-
1970s. International capital flows have increased
substantially over the past years, especially portfolio flows
and foreign direct investment. More and more emerging
markets have decided to open their economies for inward
and outward equity and debt investment. Cross-country
comparisons have shown that countries experience higher
capital inflows, lower capital cost for enterprises raising
funds through stock exchanges, higher investment
growth, improved capital allocation and ultimately higher
GDP per capita growth rates after making their economies
accessible to equity inflows (Bekaert and Harvey, 2003).
Among countries with functioning financial markets,
financial liberalization leads to faster average long-run
growth. That is why proponents of liberalization point
out that financial development and credit market
liberalization are strongly associated with economic
growth.
References
1. Kukenova Madina (2011): Financial Liberalization
and Allocative Efficiency of Capital, The World Bank:
Policy Research Working Paper 5670. 2. Beck Thorsten
(2006): Creating an Efficient Financial System: Challenges
in a Global Economy, World Bank Policy Research
Working Paper 3856. 3. Blundell-Wignall Adrian;
Browne Frank; Manasse Paolo: Monetary Policy in
Liberalised Financial Markets, OECD Economic Studies
No. 15, Autumn 1990. 4. Edwards Sebastian; Biscarri
Javier Gomez; Perez de Gracia Fernando: Stock Market
Cycles, Financial Liberalization and Volatility, National
Bureau of Economic Research: Working Paper 9817, July
2003. 5. Geert Bekaert and Campbell R. Harvey: Economic
Growth and Financial Liberalization, NBER Reporter:
Spring 2001: http://www.nber.org/reporter/spring01/
bekaert.html 6. Geert Bekaert; Campbell R. Harvey;
Christian Lundblad: Does Finantial Liberalization Spur
Growth?, National Bureau of Economic Research:
Working Paper 8245, April 2001. 7. Aaron Tornel; Frank
Westermann; Lorenza Martinez: The Positive Link
Between Financial Liberalization Growth and Crises,
National Bureau of Economic Research: Working Paper
10293, February 2004. 8. http://www.milkeninstitute.org/
eventsgcprogram.taf?function=detail&eventid=gc12&
EvID=3148 9. Alessandra Bonfiglioli: How Does Financial
Liberalization affect Economic Growth?, CREI and
Universitat Pompeu Fabra, September 20, 2005.
10. Antoni Estevadeordal; Alan M. Taylor: Is the
Washington Consensus Dead? Growth, Openness, and
the Great Liberalization, 1970s – 2000s, National Bureau
of Economic Research: Working Paper 14264, August
2008. 11. http://www.oecd-ilibrary.org/statistics
12. http://www1.worldbank.org/prem/lessons1990s/
chaps/07-Ch07_kl.pdf
Зухба Д. С., Шпиньова К. В. Результати ре-
форми лібералізації кредитного ринку
У цій статті розглянуто процес лібералізації кре-
дитних ринків різних країн та основні інструменти про-
ведення реформи. Відображено вплив фінансової лібе-
ралізації на економічне зростання найбільш розвину-
тих країн. Представлено основні показники економіч-
ного розвитку країн із найбільш розвинутими кредит-
ними ринками.
Ключові слова: кредитний ринок, лібералізація,
економічне зростання, фінансові обмеження, ринково-
орієнтовані реформи, потоки фінансового капіталу.
Зухба Д. С., Шпинёва Е. В. Результаты ре-
формы либерализации кредитного рынка
В данной статье рассмотрен процесс либерали-
зации кредитных рынков разных стран и основные
инструменты проведения реформы. Отображено влия-
ние финансовой либерализации на экономический рост
наиболее развитых стран. Представлены основные по-
казатели экономического развития стран с наиболее
развитыми кредитными рынками.
Ключевые слова: кредитный рынок, либерализа-
ция, экономический рост, финансовые ограничения,
рыночно-ориентированные реформы, потоки финан-
сового капитала.
Zukhba D. S., Shpynova K. V. Credit Market
Liberalization Reform Outcomes
This article deals with the process of credit market
liberalisation in different countries and the main tools
for conducting the reform. The impact of financial
liberalisation on economic growth in the most developed
countries has been determined. The article represents the
basic indicators of economic development in countries
with the most developed credit markets.
Key words: credit market, liberalization, economic
growth, financial regulations, market-oriented reforms,
flows of financial capital.
Received by the editors: 30.09.2013
and final form 04.12.2013
D. S. Zukhba, K. V. Shpynova
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