Development Finance: Theory and Practice

  • Fernando Cardim de Carvalho†
  • Jan Kregel
  • Lavinia Barros de CastroEmail author
  • Rogério Studart


Development finance is a subset of economics comprising hypotheses and practices on how to efficiently allocate resources towards economic and social transformation (development) of entire nations. It was born out of the challenge to promote the rapid economic transformation (development) of newly independently nations, and to reconstruct former industrial economies destroyed, physically and economically, by the two great wars of the twentieth century. For that, governments and multilateral institutions, initially embraced a policy view that governments should have an important role in promoting finance for such transformational activities—a period that have been coined as “financial repression” by its later critics. These policies included building dedicated domestic and international finance institutions, controlling international financial flows, and shaping credit conditions within national borders. From the 1970s, the pendulum turned completely on both academic and policy fronts: the view became that government activism was to be blamed for the very problems that it had been set to overcome. That is, financial repression not only resulted in inefficient allocation of existing resources but also had long-term consequences of deterring financial development and leading to other poor economic and social performance. This perspective prevailed throughout the 1980s and 2000s, and only recently, in view of the 2008–09 North Atlantic financial crisis, has been questioned. This chapter critically analyses these two periods of development finance theory and practice in the postwar period. This chapter critically analyses these two periods of development finance theory and practice in the postwar period and briefly discusses the evolution of the policy debate after the 2008–09 North Atlantic financial crisis.


Development finance Financial repression Financial liberalisation Development banks 


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Copyright information

© The Author(s) 2019

Authors and Affiliations

  • Fernando Cardim de Carvalho†
    • 1
    • 2
  • Jan Kregel
    • 2
  • Lavinia Barros de Castro
    • 3
    Email author
  • Rogério Studart
    • 4
  1. 1.Rio de Janeiro Federal University (UFRJ)Rio de JaneiroBrazil
  2. 2.Levy Economics Institute of Bard CollegeAnnandale-on-HudsonUSA
  3. 3.Brazilian National Development BankRio de JaneiroBrazil
  4. 4.University of BostonBostonUSA

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