insensitive to changes in the parameters within the 95 percent confidence intervals. Labor share<sup>and</sup> the Gini coefficient can potentially display different dynamics judging by the wider bands,<sup>especiallyafter</sup> 1989 at the peak of the credit expansion. The reason for this diversity of paths depends on whether or not the subsistence sector was completely depleted by 1996. If such was the case, then demand<sup>for</sup> workers would drive up wages, increasing the labor share and reducing inequality.<sup>If,on</sup> the<sup>contrary,</sup> such depletion did not occur, labor share would remain fairly stable and inequality<sup>couldincrease34 .</sup> Similar to the SES data results, the confidence intervals in Figure 6 show that the<sup>savingsrate and the</sup> fraction of entrepreneurs are robust to changes in the parameters. Income growth is more sensitive than its SES analogue, especially in the earlier years, 1976-1980 and after 1990. However, the bands<sup>shrink</sup> during the period of high growth. This indicates that all parameter combinations<sup>deliveredthishigh</sup> growth phase. Finally labor share and the Gini coefficient were very simular to their SES counterparts.

We thus conclude that with the exceptions enumerated above, the model<sup>isrobust tochanges inthe</sup> estimated parameters within their confidence intervals. We are yet more confident that the upturn<sup>of</sup> the Thai economy in the late 1980's could be attributed to the expansion of the financial<sup>sector.</sup>

# 9 Welfare Comparisons

We seek a measure of the welfare impact of the observed financial sector liberalization.<sup>Astherecanbe</sup> general equilibrium effects in the model from this liberalization, we need to be<sup>clear</sup> about<sup>the appropriate</sup> welfare comparison. We shall compare the economy with the exogenously expanding intermediated sector to the corresponding economy without an intermediated sector at the same parameter values. The criterion will be end-of-period wealth - that is what households in the model seek to maximize. For a given period, then, we shall characterize a household by its wealth b and beginning-of-period cost * and ask how much end-of-period wealth would increase (or decrease) if that household<sup>wereinthe</sup> intermediated sector in the liberalized economy, as compared<sup>3 5</sup> with the same household in the<sup>economy</sup> without intermediation, a restricted economy.

If in fact the wage is the same in the liberalized and restricted economies, then this is also the obvious, traditional partial equilibrium experiment - a simple comparison of matched pairs, each person with the same (b, x) combination but residing in two different sectors of a given economy, one receiving treatment in the intermediated sector and one without it. The wage is the same with and without intermediation in both SES and Townsend-Thai simulations before 1990, when the subsistence sector is not depleted.

If the wage is different across the two economies, this latter comparison does not measure the net welfare impact of the liberalization. Rather it measures end-of-period welfare differences across sectors of a given economy that has experienced price changes. To be more specific, those in the non-intermediated sector of the liberalized economy will experience the impact of the liberalization through wage changes - workers in the non-intermediated sector may benefit from wage increases while entrepreneurs in the non-intermediated sector suffer losses, since they face a higher wage. And of course there<sup>isa similar</sup> **price** impact for those in the intermediated sector, but there is a credit effect there as well. There<sup>are</sup> such wage effects using the parameters estimated from both datasets after 1990.

**'This dichotomous** feature **of** the model could **be improved by imposing diminishing** returns in the<sup>subsistence</sup><sup>**sector.**</sup> **35We** could compare the end-of-period wealth **of a** given household with _(b, x)_ in the non-intermediated sector **of** the intermediated economy with the **same** (b,x) household **in** the non-intermediated economy This would decompose<sup>the</sup> **welfare gains** (and losses).

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