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21 - Financial Repression

Published online by Cambridge University Press:  05 June 2012

Peter J. Montiel
Peter J. Montiel
Affiliation:
Williams College, Massachusetts
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Summary

Despite the contributions that an efficient financial system can make to economic welfare and growth, many developing countries have traditionally applied a combination of policies toward the financial sector that has impeded the functioning of their domestic financial systems. This policy package has become known as financial repression. This chapter will describe this set of policies and consider how they affect the functioning of the financial system as well as how they may impinge on each of the channels through which the financial system can promote growth. We will also review some of the evidence on the growth effects of financial repression in developing countries. As we will see, a substantial amount of evidence is available suggesting that financial repression has had harmful effects on economic growth.

In part because of this evidence, the view that financial repression is harmful for growth has carried the day among policy makers in emerging markets, and most emerging economies are well along in the process of revamping their policies toward the financial sector, a process known as financial liberalization. But this process has not proven to be an easy one. We will examine it in detail in the next chapter. As we will see there, a key question is what conditions have to be in place in the domestic economy for a liberalization of the domestic financial system to have a chance of being successful.

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Macroeconomics in Emerging Markets , pp. 497 - 524
Publisher: Cambridge University Press
Print publication year: 2011

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  • Financial Repression
  • Peter J. Montiel, Williams College, Massachusetts
  • Book: Macroeconomics in Emerging Markets
  • Online publication: 05 June 2012
  • Chapter DOI: https://doi.org/10.1017/CBO9780511977497.022
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To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

  • Financial Repression
  • Peter J. Montiel, Williams College, Massachusetts
  • Book: Macroeconomics in Emerging Markets
  • Online publication: 05 June 2012
  • Chapter DOI: https://doi.org/10.1017/CBO9780511977497.022
Available formats
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Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

  • Financial Repression
  • Peter J. Montiel, Williams College, Massachusetts
  • Book: Macroeconomics in Emerging Markets
  • Online publication: 05 June 2012
  • Chapter DOI: https://doi.org/10.1017/CBO9780511977497.022
Available formats
×