The missing link: the finance-growth nexus and the Guyanese growth stagnation
AbstractThe theory underpinning financial liberalization postulates that unregulated financial markets are growth-augmenting. Guyana has been a model reformer since 1988, implementing market-friendly policies. Growth performance, however, has been subdued. This paper argues that natural entry barriers necessitate an oligopolistic banking structure, which follows a mark-up threshold loan interest rate rule at which business credit is constrained. Empirical validation of the mark-up loan rate comes from a bank excess liquidity preference curve that is horizontal at the high threshold rate. Moreover, the flat curve signifies that non-remunerated excess liquidity and interest paying business loans are perfect substitutes at the threshold loan rate. Once business credit is restricted, banks hold excess liquidity and/or foreign assets. Therefore, the Guyanese economy has evolved from a regime of government financial repression to private oligopoly bank stagnation; hence the missing link connecting finance and growth.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 16342.
Date of creation: Oct 2007
Date of revision:
Publication status: Published in Social and Economic Studies 3&4.57(2008): pp. 105-129
Financial liberalization; growth; oligopoly interest rate;
Find related papers by JEL classification:
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
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