Financial liberalization has been a controversial issue as there is little empirical
evidence for its positive effects on economic growth. However, we find sizable welfare
gains, 1 to 28 percent of permanent consumption though, consistent with the literature,
the gain in the economic growth is ambiguous, -0.2 to 0.7 percent. We apply a canonical
growth model with endogenous financial deepening to Thailand, 1976-96. As effective
bank transaction costs decline, more people take advantage of financial services.
We estimate the gains by comparing model simulations under the historical episode
of financial liberalization to those under a hypothetical continuation of financial