Financial Liberalization in Developing Countries

  • Bela Balassa


McKinnon and Shaw consider financial liberalization as a mainstay of economic reforms in developing countries. McKinnon goes as far as to “define ‘economic development’ as the reduction of the great dispersion in social rates of return to existing and new investments under domestic entrepreneurial control” (1973, p. 9). He adds: “Economic development so defined is necessary and sufficient to generate high rates of saving and investment (accurately reflecting social and private time preference), the adoption of best-practice technologies, and learning-by-doing” (ibid.). Shaw suggests that “the argument for liberalization in finance is that scarcity prices for savings increase rates of saving, improve savings allocation, induce some substitution of labor for capital equipment, and assist in income equalization” (1973, p. 121).


Interest Rate Time Deposit Percent Level Real Interest Rate Financial Intermediation 
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Copyright information

© Carol Balassa 1993

Authors and Affiliations

  • Bela Balassa
    • 1
  1. 1.Political EconomyThe Johns Hopkins UniversityBaltimoreUSA

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