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Government Intervention and Financial Sector Development

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Development Finance

Part of the book series: Palgrave Studies in Impact Finance ((SIF))

Abstract

Government interventions in the financial sector have prevailed in a number of countries until the early 1990s. Criticisms against financial repression and poor performance of public banks, however, turned the tide against government intervention. As a result, the 1990s saw the introduction of financial sector reforms in several developing countries with the objectives of improving allocative efficiency of the financial institutions and financial markets. However, the recent global financial crisis has led to a resurgent interest on the role that governments can play in the financial sector.

Overall the academic literature has not reached a consensus on whether the government can play a positive or negative role. Nonetheless, the findings of the emerging literature focus on the positive countercyclical role played by the public banks during crises times and on the government’s useful role in supervision and regulation, in building financial infrastructure and in promoting macroeconomic stability.

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Notes

  1. 1.

    In their paper, the word ‘normal’ appears 31 times, yet the authors however have not defined it clearly.

  2. 2.

    Some of the limitations of their survey are: there are unconfirmed data; the survey does not explore effectiveness of development banks; distinction between commercial bank and development bank is not very clear in many countries; and finally the survey does not take into account multilateral, regional and sub-regional development banks.

  3. 3.

    An exception to this was the positive experience of four Asian tigers (South Korea, Singapore, Taiwan and Hong Kong). Among the various factors responsible for high growth rates experienced by these countries are: state interventionist policies including those in the financial sector.

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  1. Lecturer in Development Economics, University of Bradford, Bradford, UK

    Rashmi Arora

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  1. The University of Liverpool , Liverpool, United Kingdom

    Gianluigi Giorgioni

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Arora, R. (2017). Government Intervention and Financial Sector Development. In: Giorgioni, G. (eds) Development Finance. Palgrave Studies in Impact Finance. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-58032-0_3

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