Development of the Financial and Real Sectors

  • Lee Sheng-Yi
Part of the Studies in the Economies of East and South-East Asia book series (SEESEA)


The Shaw-McKinnon thesis postulates the merit of financial deepening and financial liberalisation in inducing the free play of market forces,1 so that savings and exports can be encouraged and interest rate and exchange rate can reflect the true market condition. Economic growth can then proceed without so many restrictions and controls, which would otherwise distort the functioning of financial institutions and markets, suppress market signals of capital and labour, and encourage the biased development of capital-intensive industries, inconsistent with factor endowment and comparative advantage. Thus there is a strong link between financial development and economic growth.


Gross Domestic Product Financial Institution Foreign Exchange Financial Development Tariff Rate 
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  1. 1.
    See E. S. Shaw, Financial Deepening in Economic Development (New York: Oxford University Press, 1973);Google Scholar
  2. R. I. McKinnon, Money and Capital in Economic Development (Washington: Brookings Institution, 1973);Google Scholar
  3. R. I. McKinnon (ed.) Money and Finance in Economic Growth and Development (New York: Marcel Dekker, 1976); and ‘Symposium on Finance in Developing Countries’, Journal of Development Studies, January 1977, pp. 1–43.Google Scholar
  4. 12.
    The Gini coefficient declined from 0.558 in 1953 to 0.461 in 1961 and to 0.317 in 1985; and the ratio of the income share of the richest 20 per cent to that of the poorest 20 per cent declined from 20.5 per cent in 1953 to 11.6 per cent in 1961 and to 4.5 per cent in 1985 (see Shirley W. Y. Kuo, ‘Economic Development in the Republic of China’, Conference on Economic Development in the Republic of China on Taiwan, held at Taipei on 22–7 July 1987). However, this does not imply that the land reform had such a strong effect, although it was undoubtedly one of the contributing factors.Google Scholar
  5. 13.
    See Yung Wei, ‘Planning for Growth, Equality and Democracy: the Non-Economic Factors in ROC’s Development Process’, Conference on Economic Development in the Republic of China on Taiwan, on 22–7 July 1987.Google Scholar
  6. 14.
    See Liang Kuo-Shu and Liang Hou Ching-Ing ‘Trade Strategy and the Exchange Rate Policies in Taiwan’, in Wontack Hong and Lawrence B. Krause (eds), Trade and Growth of the Advanced Developing Countries in the Pacific Basin (Papers and Proceedings of the Eleventh Pacific Trade and Development Conference) (Seoul: Korea Development Institute, 1981) pp. 151–2.Google Scholar
  7. 19.
    For an analysis of the effective tariff rates, see Ken-Nan Sun, ‘Tariff Protection and Structural Change in Taiwan’, Chung-Hua Institution for Economic Research, Economic Paper, no 8, August 1982, pp. 48 and 151.Google Scholar
  8. 22.
    See for example, Sheng-Yi Lee, Trade and Investment Relationships between Taiwan ROC and Asean Countries, CHIER Economic Monograph Series, no 16, Chung-Hua Institution for Economic Research, Taipei, 1986, pp. 79–80.Google Scholar
  9. 23.
    See, for example, Bela Balassa, ‘Export and Economic Growth: Further Evidence’, Journal of Development Economics, vol. 5, 1978, pp. 181–9;CrossRefGoogle Scholar
  10. Bela Balassa, ‘Exports, Policy Choices, and Economic Growth in Developing Countries after the 1973 Oil Shock’, Journal of Development Economics, vol. 18, 1985, pp. 23–35;CrossRefGoogle Scholar
  11. Gershon, Feder, ‘On Exports and Economic Growth’, Journal of Development Economics, vol. 12, 1983, pp. 59–73;CrossRefGoogle Scholar
  12. Heller, Peter, and Porter, Richard, ‘Exports and Growth: An Empirical Investigation’, Journal of Development Economics, vol. 5, 1978, pp. 191–3.CrossRefGoogle Scholar

Copyright information

© Lee Sheng-Yi 1990

Authors and Affiliations

  • Lee Sheng-Yi
    • 1
    • 2
  1. 1.Chung Hua Institution for Economic ResearchTaipeiTaiwan
  2. 2.Department of Economics and StatisticsNational University of SingaporeSingapore

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