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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 19, No. 4, pp.343-380
ISSN: 1225-0279 (Print)
Print publication date 30 Nov 2006
Received 19 Jun 2006 Revised 17 Dec 2006

Financial Reforms: Benefits and Costs

Jisoon Lee
Professor, School of Economics, Seoul National University, San 56-1, Sillim-dong, Gwanak-gu, Seoul 151-746, Korea, Tel: +82-2-880-6476, Fax: +82-2-886-4231 jisoon@snu.ac.kr

JEL Classfication: O16, O23

Abstract

Using financial reforms as example, we demonstrate that reform measures should be undertaken only when they have substantial net expected benefits. In most cases, financial reform measures entail substantial upfront fixed costs in return for a steady flow of benefits over a long period of time. The benefits tend to become larger in tandem with the volume of financial transactions. Because of these, it would be easier for wealthier countries to undertake financial reforms: They can afford expensive but better systems. However, poor countries cannot do so easily, because they lack sufficient resources. Consequently poor countries would better take more gradual and pragmatic approaches to financial reforms.

Keywords:

Financial reforms, Economic growth, Stage-dependent reforms, Evolutionary reform processes

Acknowledgments

I am very grateful Peter McCawley, John Weiss, Toshiki Kanamori, Kian Wie Thee, and Jeoung Keun Lee of ADBI for their encouragements and comments. I would also like to thank two referees for their valuable suggestions.

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