Smallfirms are financially constrained before the start of the liberalization process, but become less so after liberalization. Financing constraints of large firms, however, are low before financial liberalization, but become higher as financial liberalization proceeds.

Why is financial liberalization important?

Most of the relevant literature has proposed that financial liberalization creates financial market efficiency, thereby generating savings, investment and higher growth. Various other authors have criticized financial liberalization policies and claimed that past financial crises are in fact linked with such policies.

Is financial liberalization good?

Although our findings indicate that, on average, there is a positive effect of financial liberalization on growth, the significance of this effect is only weak. Moreover, we find that most of the variables that may help explain the heterogeneity of results are insignificant. There are two exceptions.