Impact of financial liberalization on private savings rate a panel data analysis

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM – NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS IMPACT OF FINANCIAL LIBERALIZATION ON PRIVATE SAVINGS RATE: A PANEL DATA ANALYSIS MASTER OF ARTS IN DEVELOPMENT ECONOMICS BY Mr LE THANH THANH Academic Supervisor: Dr NGUYEN HOANG BAO Ho Chi Minh City, April 2016 UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM – NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS IMPACT OF FINANCIAL LIBERALIZATION ON PRIVATE SAVINGS RATE: A PANEL DATA ANALYSIS MASTER OF ARTS IN DEVELOPMENT ECONOMICS BY Mr LE THANH THANH Academic Supervisor: Dr NGUYEN HOANG BAO Ho Chi Minh City, April 2016 ABSTRACT This paper investigates the impact of financial liberalization on private savings rate The study covers the data of 58 countries from 1980 to 2005 The Abiad et al (2008) database was used to measure the financial liberalization indices Three-Stage Least Squares (3SLS) was chosen as the main estimator of this study The finding results show that financial liberalization has both direct and indirect effect on private savings rate The direct effect, through state ownership in the banking sector, credit controls and excessively high reserve requirements, entry barriers, prudential regulations and supervision of the banking sector, capital account restrictions, interest rate controls, reduces private savings rate while indirect effect, through entry barriers and capital account restrictions, are increasing Besides that, the findings also show an ambiguous correlation between economic growth and the private saving rate However, using de jure indicators to measure financial liberalization makes the study can only identify the existence and direction of the impact of financial liberalization on the private savings rate The intensity of this impact can not yet be measured In addition, the observed data only updated to 2005 and not focus on any special group of countries So, it is not appropriate to recommend a particular policy based on the results of this study Keywords: financial liberalization, private savings, panel data ACKNOWLEDGEMENT Foremost, I would like to sincerely and gratefully thank Dr Nguyen Hoang Bao, my supervisor, for his great support, crucial advice, and precious during my thesis finish Without his guidance, I am unable to finish this thesis Besides, I special thanks to the Vietnam – Netherlands Programme, especially professors and staffs for their help during my thesis process I would like to thank all my friends who always beside me to encourage, help me when I got stuck in doing the thesis and want to give up Without them, I cannot finish this thesis Last but not least, I would like to thank my family for their sacrifices for supporting me not only in doing thesis but also in my life CONTENTS ACKNOWLEDGEMENT CONTENTS LIST OF TABLES LIST OF FIGURES CHAPTER ONE: INTRODUCTION 10 1.1 Problem statement 10 1.2 Research objectives and research questions 12 1.3 The structure of research 13 CHAPTER TWO: LITERATURE REVIEW 14 2.1 Theoretical literature 14 2.1.1 Private savings 14 2.1.1.1 Definition 14 2.1.1.2 Theoretical models of saving function 15  Keynesian savings function 16  Life cycle theory 18  The Mckinnon - Shaw Hypothesis 20 2.1.2 Financial liberalization 24 2.1.2.1 Definition 24 2.1.2.2 Financial liberalization indices 27 2.1.2.3 Process of financial liberalization 28 2.1.2.4 Criticism of financial liberalization 31 2.1.3 Economic growth 32 2.1.3.1 Definition 32 2.1.3.2 Theoretical models of economic growth 33  Classical growth theory 33  Dual-sector model 33  Keynesian growth theory 34  Harrod–Domar model 35  Solow model 35  P.A Samuelson theory 36 2.1.4 The relationship between private savings, economic growth and financial liberalization 37 2.2 Empirical literature 43 2.2.1 General saving function 43 2.2.2 Financial liberalization and private saving rate 45 CHAPTER THREE: RESEARCH METHODOLOGY 47 3.1 Model descriptions 47 3.1.1 Model specification 47 3.1.2 Method specification 52 3.2 Variable measurements 55 3.2.1 Measurement of private savings rate 55 3.2.2 Measurement of financial liberalization 56 3.3 Summarize of variables description and data sources 59 CHAPTER FOUR: RESULTS 62 4.1 Description statistics 62 4.2 Estimation results 71 CHAPTER FIVE: CONCLUSIONS 76 5.1 Major findings and policy implication 76 5.2 Limitations 77 REFERENCES 79 APPENDIX 89 A Financial liberalization measures 89 B Coding rule of Abiad et al financial liberalization indices 95 C List of countries 102 D Detailed econometrics estimating and testing results 103 LIST OF TABLES Table 2.1 Determinants of the Ratio of Private Saving to Income in Panel Studies 43 Table 3.1 Description and expected sign of variables 52 Table 3.2 The direction of combined effect 54 Table 3.3 Summary Statistics for Financial Liberalization Components and Index (Abiad et al, 2008) 58 Table 3.4 Variable description and data source 59 Table 4.1: Descriptive statistics 62 Table 4.2: Correlations among financial liberalization indices 63 Table 4.3 The effect of seven financial liberalization indicators on private savings rate 70 LIST OF FIGURES Figure 2.1: Life cycle theory 18 Figure 2.2: The effect of interest ceiling rate on saving and investment 21 Figure 2.3: The Mckinnon and Show hypothesis 22 Figure 2.4: Financial liberalization process 29 Figure 3.1: The interaction between Financial liberalization, Private savings and Economic growth 47 Figure 4.1 The average private saving rate, economic growth and financial liberalization (1980 - 2005) 64 Figure 4.2 Private saving rate (PSR), GNDI per capita growth rate (GY) and Financial liberalization indices (1980 - 2005) 66 Figure 4.3: Scatter plot between Private saving rate (PSR) and Financial liberalization indices (1980 - 2005) 68 CHAPTER ONE: INTRODUCTION 1.1 Problem statement From the mid-1980s, many developing countries undertook to liberalize its financial markets This process is considered to be one of the important factors in promoting national economic development as well as promoting economic integration in the world economy Studying about the impact of financial liberalization on the country’s economy, therefore, is a very interesting topic Although there have been many studies on this subject, however, there are a lot of issues have not yet been settle and must be discussed further One of them is the impact of financial liberalization on savings Beginning with McKinnon (1973) and Shaw (1973) theory, they suggest that financial liberalization will break the government intervention on interest rates, pulling interest rate up to the natural equilibrium of the market, thus increasing the savings rate Many subsequent studies have tried to find a deeper understanding as well as testing this hypothesis (Giovannini, 1985; Campbell and Mankiw, 1990; Ostry and Reinhart, 1992; Koskela, Loikkanen and Viren, 1992; Bayoumi, 1993; Jappelli and Pagano, 1994; Ogaki, Ostry and Reinhart, 1996; Bandiera et al, 1999; Loayza et al, 2000; Chowdhury, 2001; Hebbel and Serven, 2002; Reinhart and Tokatlidis, 2003; Baliamoune and Chowdhury, 2003; Nair, 2006; Ahmed and Islam, 2010; Ang and Sen, 2011) However, the results are still ambiguous Some studies show the positive impact of financial liberalization on savings (Bandiera et al, 1999; Baliamoune and Chowdhury, 2003; Ahmed and Islam, 2010), while others indicate that financial liberalization is the cause that reduce savings rate (Koskela, Loikkanen and Viren, 1992; Jappelli and Pagano, 1994; Loayza et al, 2000; Ang Nair, 2006; Sen, 2009; Ang, 2011) Besides, there are other studies resulting an unclear relationship between these two factors (Bayoumi, 1993; Hebbel and Serven, 2002; Reinhart and Tokatlidis, 2003) One of the limitations of previous studies is the difficulty to measure accurately financial liberalization This led to the following weaknesses: 10 First, many studies measure financial liberalization very rudimentary They used a dummy variable with value and to measure financial liberalization (Harris, et al., 1994; Haramillo, et al., 1996; Hermes and Lensink, 1998; and Bekaert, et al., 2005).With for year financial repression and from the year starting financial liberalization In fact, it is clearly that financial liberalization is a process, not simply as an event The financial markets have gone through many stages to reach a certain degree of liberalization, it can not be changed in a short time Second, some studies focus only on one or several aspects of financial liberalization as opening up banking and stock Domestic Markets to Foreigners (Levine, 2001), capital account liberalization (Eichengreen and Leblang, 2003) and stock market liberalization (Bekaert, et al., 2005) Financial liberalization, in fact, is a process that includes a lot of stages and different aspects The review merely on one or a few aspects can not bring the expected results Another thing should also mention when referring to aspects of financial liberalization is: most previous studies have focused on building a general index reflecting the financial liberalization of the country The general index is constructed primarily by summing the possible aspects of financial liberalization can be measured Principal component analysis (PCA) is a method often used This inadvertently leads to two following consequences: - This index may consist of two parts: policies have an effect on private saving and policies have not (or insignificant) effect The combined all of those effects could not provide a specific and detailed view of the impact of financial liberalization Factors have significant effect General financial liberalization index Factors have insignificant effect 11 Entrybarriers Endogenous coefficients matrix PSR GY PSR -1 GY -1 Exogenous coefficients matrix PSR GY entrybarriers 5 GSR 5 RDI INF 5 DR Eq is identified Eq is identified System is identified 109 logy logpop GP logrgdpwok Three-stage least-squares regression Equation Obs Parms RMSE "R-sq" chi2 P PSR GY 730 730 7 8.240327 3.797271 0.2558 0.0074 345.74 132.61 0.0000 0.0000 Coef Std Err z P>|z| [95% Conf Interval] PSR entrybarriers GSR RDI INF DR logy GY _cons -3.990917 -.0112047 -.1214236 -.1220469 -1.138859 -.0910487 -1.208472 78.84661 487473 0199951 0922256 0922816 1529986 4514214 6053629 13.46994 -8.19 -0.56 -1.32 -1.32 -7.44 -0.20 -2.00 5.85 0.000 0.575 0.188 0.186 0.000 0.840 0.046 0.000 -4.946347 -.0503944 -.3021824 -.3029156 -1.438731 -.9758184 -2.394962 52.44602 -3.035488 027985 0593352 0588218 -.8389869 7937209 -.0219827 105.2472 GY entrybarriers PSR GSR INF logpop GP logrgdpwok _cons -.3844943 2212717 0423214 -.0005032 -.9663439 -.8301132 -1.723572 33.57415 2144298 0709935 006381 0003058 2712205 1911878 3177583 5.665514 -1.79 3.12 6.63 -1.65 -3.56 -4.34 -5.42 5.93 0.073 0.002 0.000 0.100 0.000 0.000 0.000 0.000 -.804769 0821269 0298148 -.0011025 -1.497926 -1.204834 -2.346367 22.46995 0357803 3604164 0548279 0000961 -.4347616 -.455392 -1.100777 44.67836 Endogenous variables: Exogenous variables: PSR GY entrybarriers GSR RDI INF DR logy logpop GP logrgdpwok 110 ================================================= * System Heteroscedasticity Tests (3sls) ================================================= *** Single Equation Heteroscedasticity Tests: Ho: Homoscedasticity - Ha: Heteroscedasticity Eq PSR : Engle LM ARCH Test: E2 = E2_1 =226.3474 P-Value > Chi2(1) 0.0000 Eq PSR : Hall-Pagan LM Test: E2 = Yh = 3.0896 P-Value > Chi2(1) 0.0788 Eq PSR : Hall-Pagan LM Test: E2 = Yh2 = 1.4246 P-Value > Chi2(1) 0.2326 Eq PSR : Hall-Pagan LM Test: E2 = LYh2 = 5.9698 P-Value > Chi2(1) 0.0146 -Eq GY : Engle LM ARCH Test: E2 = E2_1 = 35.4031 P-Value > Chi2(1) 0.0000 Eq GY : Hall-Pagan LM Test: E2 = Yh = 2.4848 P-Value > Chi2(1) 0.1149 Eq GY : Hall-Pagan LM Test: E2 = Yh2 = 6.5366 P-Value > Chi2(1) 0.0106 Eq GY : Hall-Pagan LM Test: E2 = LYh2 = 3.4848 P-Value > Chi2(1) 0.0619 -*** Overall System Heteroscedasticity Tests: Ho: No Overall System Heteroscedasticity - Breusch-Pagan LM Test = 63.6451 P-Value > Chi2(1) 0.0000 - Likelihood Ratio LR Test = 66.5922 P-Value > Chi2(1) 0.0000 - Wald Test = 628.1850 P-Value > Chi2(1) 0.0000 111 Bankingsuperv Endogenous coefficients matrix PSR GY PSR -1 GY -1 Exogenous coefficients matrix PSR GY bankingsuperv 5 GSR 5 RDI INF 5 DR logy Eq is identified Eq is identified System is identified 112 logpop GP logrgdpwok Three-stage least-squares regression Equation Obs Parms RMSE "R-sq" chi2 P PSR GY 730 730 7 7.785111 3.648622 0.3357 0.0836 429.50 142.90 0.0000 0.0000 Coef Std Err z P>|z| [95% Conf Interval] PSR bankingsuperv GSR RDI INF DR logy GY _cons -1.93963 -.0608744 -.1953565 -.1949656 -1.120626 -.1602819 -.4589945 70.16176 3330926 0159281 0824184 0824494 1361633 4166123 5322347 11.62303 -5.82 -3.82 -2.37 -2.36 -8.23 -0.38 -0.86 6.04 0.000 0.000 0.018 0.018 0.000 0.700 0.388 0.000 -2.59248 -.0920928 -.3568935 -.3565635 -1.387501 -.9768271 -1.502155 47.38104 -1.286781 -.0296559 -.0338194 -.0333678 -.8537508 6562633 5841664 92.94249 GY bankingsuperv PSR GSR INF logpop GP logrgdpwok _cons 2431878 1451384 0387505 -.0003008 0687882 -.8092322 -1.445491 13.66182 1713634 0672345 0064918 0003052 282003 1886224 3193584 6.036857 1.42 2.16 5.97 -0.99 0.24 -4.29 -4.53 2.26 0.156 0.031 0.000 0.324 0.807 0.000 0.000 0.024 -.0926782 0133612 0260268 -.000899 -.4839275 -1.178925 -2.071421 1.829802 5790539 2769157 0514741 0002974 621504 -.439539 -.8195596 25.49385 Endogenous variables: Exogenous variables: PSR GY bankingsuperv GSR RDI INF DR logy logpop GP logrgdpwok 113 ================================================= * System Heteroscedasticity Tests (3sls) ================================================= *** Single Equation Heteroscedasticity Tests: Ho: Homoscedasticity - Ha: Heteroscedasticity Eq PSR : Engle LM ARCH Test: E2 = E2_1 =439.5051 P-Value > Chi2(1) 0.0000 Eq PSR : Hall-Pagan LM Test: E2 = Yh = 0.0294 P-Value > Chi2(1) 0.8638 Eq PSR : Hall-Pagan LM Test: E2 = Yh2 = 0.0182 P-Value > Chi2(1) 0.8928 Eq PSR : Hall-Pagan LM Test: E2 = LYh2 = 0.0886 P-Value > Chi2(1) 0.7659 -Eq GY : Engle LM ARCH Test: E2 = E2_1 = 28.9099 P-Value > Chi2(1) 0.0000 Eq GY : Hall-Pagan LM Test: E2 = Yh = 11.1828 P-Value > Chi2(1) 0.0008 Eq GY : Hall-Pagan LM Test: E2 = Yh2 = 0.9962 P-Value > Chi2(1) 0.3182 Eq GY : Hall-Pagan LM Test: E2 = LYh2 = 0.0033 P-Value > Chi2(1) 0.9541 -*** Overall System Heteroscedasticity Tests: Ho: No Overall System Heteroscedasticity - Breusch-Pagan LM Test = 54.3539 P-Value > Chi2(1) 0.0000 - Likelihood Ratio LR Test = 56.4839 P-Value > Chi2(1) 0.0000 - Wald Test = 601.7355 P-Value > Chi2(1) 0.0000 114 Privatization Endogenous coefficients matrix PSR GY PSR -1 GY -1 Exogenous coefficients matrix PSR GY privatization 5 GSR 5 RDI INF 5 DR Eq is identified Eq is identified System is identified 115 logy logpop GP logrgdpwok Three-stage least-squares regression Equation Obs Parms RMSE "R-sq" chi2 P PSR GY 730 730 7 8.238327 3.780601 0.2561 0.0161 346.61 119.36 0.0000 0.0000 Coef Std Err z P>|z| [95% Conf Interval] PSR privatization GSR RDI INF DR logy GY _cons -1.613299 -.0391007 -.1843518 -.1842657 -1.067398 -.2500298 -.9127471 70.62347 324848 0186341 0976889 0977317 1546016 4757556 631725 13.55923 -4.97 -2.10 -1.89 -1.89 -6.90 -0.53 -1.44 5.21 0.000 0.036 0.059 0.059 0.000 0.599 0.149 0.000 -2.249989 -.0756229 -.3758186 -.3758164 -1.370411 -1.182494 -2.150905 44.04787 -.9766087 -.0025785 007115 007285 -.7643841 6824341 3254112 97.19908 GY privatization PSR GSR INF logpop GP logrgdpwok _cons 0782027 2204908 0406744 -.0003928 -.6614872 -.8572285 -1.812585 28.27184 1490349 0756685 006673 0003097 3090517 1870394 349161 6.613771 0.52 2.91 6.10 -1.27 -2.14 -4.58 -5.19 4.27 0.600 0.004 0.000 0.205 0.032 0.000 0.000 0.000 -.2139004 0721832 0275956 -.0009998 -1.267218 -1.223819 -2.496928 15.30909 3703057 3687984 0537531 0002141 -.0557569 -.4906381 -1.128242 41.23459 Endogenous variables: Exogenous variables: PSR GY privatization GSR RDI INF DR logy logpop GP logrgdpwok 116 ================================================= * System Heteroscedasticity Tests (3sls) ================================================= *** Single Equation Heteroscedasticity Tests: Ho: Homoscedasticity - Ha: Heteroscedasticity Eq PSR : Engle LM ARCH Test: E2 = E2_1 =346.3423 P-Value > Chi2(1) 0.0000 Eq PSR : Hall-Pagan LM Test: E2 = Yh = 6.1154 P-Value > Chi2(1) 0.0134 Eq PSR : Hall-Pagan LM Test: E2 = Yh2 = 6.3124 P-Value > Chi2(1) 0.0120 Eq PSR : Hall-Pagan LM Test: E2 = LYh2 = 4.8255 P-Value > Chi2(1) 0.0280 -Eq GY : Engle LM ARCH Test: E2 = E2_1 = 38.6868 P-Value > Chi2(1) 0.0000 Eq GY : Hall-Pagan LM Test: E2 = Yh = 5.7200 P-Value > Chi2(1) 0.0168 Eq GY : Hall-Pagan LM Test: E2 = Yh2 = 6.9679 P-Value > Chi2(1) 0.0083 Eq GY : Hall-Pagan LM Test: E2 = LYh2 = 3.0421 P-Value > Chi2(1) 0.0811 -*** Overall System Heteroscedasticity Tests: Ho: No Overall System Heteroscedasticity - Breusch-Pagan LM Test = 1.6830 P-Value > Chi2(1) 0.1945 - Likelihood Ratio LR Test = 1.6850 P-Value > Chi2(1) 0.1943 - Wald Test = 614.7647 P-Value > Chi2(1) 0.0000 117 Intlcapital Endogenous coefficients matrix PSR GY PSR -1 GY -1 Exogenous coefficients matrix PSR GY intlcapital 5 GSR 5 RDI INF 5 DR Eq is identified Eq is identified System is identified 118 logy logpop GP logrgdpwok Three-stage least-squares regression Equation Obs Parms RMSE "R-sq" chi2 P PSR GY 730 730 7 9.141545 3.934048 0.0841 -0.0654 234.25 130.95 0.0000 0.0000 Coef Std Err z P>|z| [95% Conf Interval] PSR intlcapital GSR RDI INF DR logy GY _cons -3.567183 -.0283429 -.1877721 -.1875045 -1.229968 0535266 -1.548943 80.46431 7372626 0225904 1225416 1225278 1951229 520313 7953259 17.01365 -4.84 -1.25 -1.53 -1.53 -6.30 0.10 -1.95 4.73 0.000 0.210 0.125 0.126 0.000 0.918 0.051 0.000 -5.012191 -.0726193 -.4279493 -.4276546 -1.612402 -.9662681 -3.107754 47.11816 -2.122175 0159335 0524051 0526455 -.8475341 1.073321 0098668 113.8105 GY intlcapital PSR GSR INF logpop GP logrgdpwok _cons -.4107396 2670645 0425953 -.0004601 -1.183008 -.7495977 -1.785683 36.7694 1957943 0700825 0066433 0003103 2855048 1875189 3372065 6.118979 -2.10 3.81 6.41 -1.48 -4.14 -4.00 -5.30 6.01 0.036 0.000 0.000 0.138 0.000 0.000 0.000 0.000 -.7944894 1297054 0295746 -.0010683 -1.742587 -1.117128 -2.446595 24.77642 -.0269898 4044236 055616 0001481 -.623429 -.3820673 -1.12477 48.76238 Endogenous variables: Exogenous variables: PSR GY intlcapital GSR RDI INF DR logy logpop GP logrgdpwok 119 ================================================= * System Heteroscedasticity Tests (3sls) ================================================= *** Single Equation Heteroscedasticity Tests: Ho: Homoscedasticity - Ha: Heteroscedasticity Eq PSR : Engle LM ARCH Test: E2 = E2_1 =231.3195 P-Value > Chi2(1) 0.0000 Eq PSR : Hall-Pagan LM Test: E2 = Yh = 3.5364 P-Value > Chi2(1) 0.0600 Eq PSR : Hall-Pagan LM Test: E2 = Yh2 = 0.0704 P-Value > Chi2(1) 0.7907 Eq PSR : Hall-Pagan LM Test: E2 = LYh2 = 15.0413 P-Value > Chi2(1) 0.0001 -Eq GY : Engle LM ARCH Test: E2 = E2_1 = 45.0063 P-Value > Chi2(1) 0.0000 Eq GY : Hall-Pagan LM Test: E2 = Yh = 2.0663 P-Value > Chi2(1) 0.1506 Eq GY : Hall-Pagan LM Test: E2 = Yh2 = 15.1941 P-Value > Chi2(1) 0.0001 Eq GY : Hall-Pagan LM Test: E2 = LYh2 = 10.4412 P-Value > Chi2(1) 0.0012 -*** Overall System Heteroscedasticity Tests: Ho: No Overall System Heteroscedasticity - Breusch-Pagan LM Test = 91.6898 P-Value > Chi2(1) 0.0000 - Likelihood Ratio LR Test = 97.9807 P-Value > Chi2(1) 0.0000 - Wald Test = 646.2386 P-Value > Chi2(1) 0.0000 120 Securitymarkets Endogenous coefficients matrix PSR GY PSR -1 GY -1 Exogenous coefficients matrix PSR GY securitymarkets 5 PSR GY logrgdpwok GSR 5 RDI INF 5 Eq is identified Eq is identified System is identified 121 DR logy logpop GP Three-stage least-squares regression Equation Obs Parms RMSE "R-sq" chi2 P PSR GY 730 730 7 8.791095 3.90183 0.1529 -0.0480 286.77 123.67 0.0000 0.0000 Coef Std Err z P>|z| [95% Conf Interval] PSR securitymarkets GSR RDI INF DR logy GY _cons -.9684714 -.0413157 -.2056568 -.2057209 -1.266143 -.5619912 -1.18831 81.76299 8636387 0205429 1085983 1086756 2188065 468267 7417562 17.36147 -1.12 -2.01 -1.89 -1.89 -5.79 -1.20 -1.60 4.71 0.262 0.044 0.058 0.058 0.000 0.230 0.109 0.000 -2.661172 -.0815791 -.4185056 -.4187211 -1.694996 -1.479778 -2.642126 47.73513 7242294 -.0010523 007192 0072793 -.8372899 3557953 2655052 115.7908 GY securitymarkets PSR GSR INF logpop GP logrgdpwok _cons -1.09889 2818759 0448636 -.0005609 -.9045006 -.8077423 -1.381026 29.2605 2612498 0838671 0072207 0003215 3485977 2019836 3272253 6.953744 -4.21 3.36 6.21 -1.74 -2.59 -4.00 -4.22 4.21 0.000 0.001 0.000 0.081 0.009 0.000 0.000 0.000 -1.61093 1174993 0307114 -.0011911 -1.58774 -1.203623 -2.022376 15.63141 -.5868497 4462525 0590159 0000693 -.2212616 -.4118617 -.739676 42.88958 Endogenous variables: Exogenous variables: logrgdpwok PSR GY securitymarkets GSR RDI INF DR logy logpop GP 122 ================================================= * System Heteroscedasticity Tests (3sls) ================================================= *** Single Equation Heteroscedasticity Tests: Ho: Homoscedasticity - Ha: Heteroscedasticity Eq PSR : Engle LM ARCH Test: E2 = E2_1 =310.7168 P-Value > Chi2(1) 0.0000 Eq PSR : Hall-Pagan LM Test: E2 = Yh = 3.2647 P-Value > Chi2(1) 0.0708 Eq PSR : Hall-Pagan LM Test: E2 = Yh2 = 1.8896 P-Value > Chi2(1) 0.1692 Eq PSR : Hall-Pagan LM Test: E2 = LYh2 = 4.8096 P-Value > Chi2(1) 0.0283 -Eq GY : Engle LM ARCH Test: E2 = E2_1 = 34.3161 P-Value > Chi2(1) 0.0000 Eq GY : Hall-Pagan LM Test: E2 = Yh = 3.8708 P-Value > Chi2(1) 0.0491 Eq GY : Hall-Pagan LM Test: E2 = Yh2 = 8.8278 P-Value > Chi2(1) 0.0030 Eq GY : Hall-Pagan LM Test: E2 = LYh2 = 7.0280 P-Value > Chi2(1) 0.0080 -*** Overall System Heteroscedasticity Tests: Ho: No Overall System Heteroscedasticity - Breusch-Pagan LM Test = 1.3269 P-Value > Chi2(1) 0.2494 - Likelihood Ratio LR Test = 1.3281 P-Value > Chi2(1) 0.2491 - Wald Test = 623.9345 P-Value > Chi2(1) 0.0000 123 ... financial liberalization is now much broader definition Basically, financial liberalization is easing restrictions on capital account (mainly capital flows) and the financial transactions of. .. financial liberalization is increasingly expanding It is difficult to give an accurate general concept of financial liberalization Nowaday, the concept of financial liberalization are not confined... state (Williamson and Mahar, 1998) Williamson and Mahar (1998) argues that financial liberalization has six factors: interest rates deregulation, free participation in the banking sector, private