Financial Liberalization and the Finance–Growth Nexus: What Have We Learned?

  • Philip Arestis
  • Malcolm Sawyer
Part of the International Papers in Political Economy Series book series (IPPE)

Abstract

The chapter investigates the growth-finance nexus with reference to what has become known as ‘financial markets liberalization’. More precisely, the focus of this contribution will be the removal of Central Bank control over prices charged by banks (notably interest rates), especially in developing countries. The history of banking as the policy makers in both developing and developed countries adopted the essentials of the financial liberalization thesis and pursued corresponding policies, tells a rather sad story: banking crises have been unusually frequent and severe, and they have exacerbated downturns in economic activity, thereby imposing substantial real economic costs. We argue that this experience is not unrelated to the financial liberalization policies pursued by countries. We do this by looking at a number of problems entailed in the financial liberalization thesis and by referring to existing evidence. In so doing this chapter intends to seek an answer to the question of ‘what have we learned?’ from the work undertaken on the issue of financial liberalization and its relevance to the finance-growth nexus.

Keywords

Europe Covariance Income Turkey Stein 

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Copyright information

© Philip Arestis and Malcolm Sawyer 2005

Authors and Affiliations

  • Philip Arestis
    • 1
  • Malcolm Sawyer
    • 2
  1. 1.Levy Economics InstituteUniversity of CambridgeUK
  2. 2.University of LeedsUK

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