Testing liquidity constraints in ten Asian developing countries: an error-correction model approach

Abstract

An error-correction model is used to estimate the fraction of consumers who are liquidity-constrained in ten Asian developing countries. Our estimates of the fraction of consumers who are liquidity-constrained range between 0.25 and 0.98. We further investigate whether financial liberalisation has resulted in the reduction of liquidity constraints in these countries. However, the results find support for this only in the cases of South Korea, Sri Lanka and Taiwan.