The Impact of Financial Liberalization on Economic Development: A Comparison Between China and Japan

Abstract

According to the theory of financial liberalization, effective financial reform and moderate regulation of financial market can promote economic development. Taking China and Japan as examples, this paper analyzes some problems in the current financial liberalization reform of the two countries. Simulation scenarios about financial reform are then applied to China and Japan using the GTAP computable general equilibrium model of the global economy. The simulation results show that reducing investment barriers and improving the efficiency of capital use in the industrial sector can effectively promote the economic growth of China and Japan above levels that would otherwise be achieved. Improving the efficiency of the financial sector service delivery would have an additional positive impact on the economies of both countries, albeit small compared to measures that promote gains across all sectors.