1993 | OriginalPaper | Chapter
Financial Liberalization in Developing Countries
Author : Bela Balassa
Published in: Policy Choices for the 1990s
Publisher: Palgrave Macmillan UK
Included in: Professional Book Archive
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McKinnon and Shaw consider financial liberalization as a mainstay of economic reforms in developing countries. McKinnon goes as far as to “define ‘economic development’ as the reduction of the great dispersion in social rates of return to existing and new investments under domestic entrepreneurial control” (1973, p. 9). He adds: “Economic development so defined is necessary and sufficient to generate high rates of saving and investment (accurately reflecting social and private time preference), the adoption of best-practice technologies, and learning-by-doing” (ibid.). Shaw suggests that “the argument for liberalization in finance is that scarcity prices for savings increase rates of saving, improve savings allocation, induce some substitution of labor for capital equipment, and assist in income equalization” (1973, p. 121).