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An Institutional Perspective to Finance and Development as an Alternative to Financial Liberalisation

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  • Philip Arestis
  • Howard Stein

Abstract

This paper argues that financial liberalisation as practiced recently worldwide engenders widespread financial crises precisely because of the weak foundations of its theoretical framework and poor empirical performance. Financial liberalisation is critically evaluated on both theoretical and empirical grounds, which suggests that an alternative is vitally necessary. Based on institutional theory,a new approach is proposed the focus of which is on ways to affect financial and banking transformation that is more consistent with economic development. We demonstrate how this theoretical approach can be applied in the real world, and indeed how the theoretical propositions we put forward in this contribution, very different from those of financial liberalisation, produce a more developmentally oriented set of policies for the countries that are prepared to pursue them.

Suggested Citation

  • Philip Arestis & Howard Stein, 2005. "An Institutional Perspective to Finance and Development as an Alternative to Financial Liberalisation," International Review of Applied Economics, Taylor & Francis Journals, vol. 19(4), pages 381-398.
    • Handle: RePEc:taf:irapec:v:19:y:2005:i:4:p:381-398
    DOI: 10.1080/02692170500208459
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    References listed on IDEAS

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    1. Nabli, Mustapha K. & Nugent, Jeffrey B., 1989. "The New Institutional Economics and its applicability to development," World Development, Elsevier, vol. 17(9), pages 1333-1347, September.
    2. R McKinnon, 1991. "Financial Control in the Transition to a Market Economy," CEP Discussion Papers dp0040, Centre for Economic Performance, LSE.
    3. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    4. Beck, Thorsten & Levine, Ross, 2002. "Industry growth and capital allocation:*1: does having a market- or bank-based system matter?," Journal of Financial Economics, Elsevier, vol. 64(2), pages 147-180, May.
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    Cited by:

    1. Doaa M. Salman & Eyad M. Atya, 2014. "What is the role of Financial Development and Energy Consumption on Economic Growth? New Evidence from North African Countries," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 3(1), pages 137-149, January.
    2. Shahbaz, Muhammad & Lean, Hooi Hooi, 2012. "Does financial development increase energy consumption? The role of industrialization and urbanization in Tunisia," Energy Policy, Elsevier, vol. 40(C), pages 473-479.
    3. Dandume, Muhammad Yusuf & A.C., Dr.Malarvizhi, 2014. "Does Financial Liberalization, Spur Economic Growth and Poverty Reduction in Six Sub-Saharan African Countries; Panel Unit Root and Panel Vector Error Correction Tests," MPRA Paper 52349, University Library of Munich, Germany, revised Aug 2013.
    4. Amaira Bouzid, 2013. "Governance, Financial Liberalization And Economic Growth: Dynamic Panel Data Approach," Romanian Economic Business Review, Romanian-American University, vol. 8(2), pages 59-74, June.
    5. Thomas Gries & Manfred Kraft & Daniel Meierrieks, 2011. "Financial deepening, trade openness and economic growth in Latin America and the Caribbean," Applied Economics, Taylor & Francis Journals, vol. 43(30), pages 4729-4739.
    6. Mekki Hamdaoui, 2017. "RETRACTED ARTICLE: Liberalization, Regulatory Delays and Vulnerability to Systemic Banking Crisis," International Economic Journal, Taylor & Francis Journals, vol. 31(4), pages 490-534, October.
    7. Konstantinos Loizos, 2018. "The Financial Repression†Liberalization Debate: Taking Stock, Looking For A Synthesis," Journal of Economic Surveys, Wiley Blackwell, vol. 32(2), pages 440-468, April.
    8. Comlanvi Jude EGGOH, 2009. "Développement financier et croissance : Une synthèse des contributions pionnières," LEO Working Papers / DR LEO 442, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    9. Farzad Haider Alvi & Peter J. Williamson, 2023. "Responses to global financial standards in emerging markets: Regulatory neoliberalism and the Basel II Capital Accord," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2635-2650, July.
    10. Akinsola, Folusu A. & Odhiambo, Nicholas M., 2018. "Revisiting financial liberalisation and economic growth: A review of international literature," Working Papers 24794, University of South Africa, Department of Economics.
    11. Godspower-Akpomiemie, Euphemia & Ojah, Kalu, 2021. "Market discipline, regulation and banking effectiveness: Do measures matter?," Journal of Banking & Finance, Elsevier, vol. 133(C).
    12. Mekki Hamdaoui & Samir Maktouf, 2019. "Overall effects of financial liberalization: financial crisis versus economic growth," International Review of Applied Economics, Taylor & Francis Journals, vol. 33(4), pages 568-595, July.

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