In this paper, two phenomena in Taiwan-financial dualism and financial market segmentation-are incorporated in the theoretical model. Financial dualism means that an informal unregulated financial system coexists with a formal regulated financial system, and plays an important role. Financial market segmentation refers to the phenomenon that public enterprises and large private firms borrow mainly from the formal financial system, whereas small firms depend heavily on informal market financial. Two theoretical model- one without considering the money, the other with considering the money-are then used to analyze the short-run and steady-state effects of trariff-readuction, capital-flow decontrol, and bank deregulation.
According to the results of analyses by this paper, under the financial dualism and market segmentation, the resources reallocation and welfare effects of the above three economic liberalization policies are not only different by each other. But the channel and direction of influencing effect of the same liberalization policy also may always change, by depending on the commodities structure and the circumstance of demand and supply of the banking system. Furthermore, the welfare effect of anyone liberalization policy even may be not the same in the short-run and steady-state.
