n African Finance Journal - From repression to liberalization : the changing role of government




Two competing theories in financial economics offer different policy approaches for financial market development. The imperfect information paradigm supports financial repression with government intervention. Financial liberalization policies are designed to "liberate" the financial systems from government interference. Despite decades of intervention and liberalization, savings and investments in many developing countries have remained low. This suggests that policy designs influenced by the two paradigms are not sufficient to address problems facing financial systems in developing countries. Financial deepening cannot occur without sound institutional infrastructure. While getting prices is necessary, public policy has an important role in financial market development.


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