Financial Liberalization, Growth and Financial Crisis

One of the most relevant contributions made by Philip Arestis to the economics literature is his study on the relationship between finance and growth. The extent of his work and the limited size of this chapter makes possible only to mention a small sample of his contributions. Philip Arestis has helped to recognize the existence of a deep relationship between finance and development and growth and to understand the channels through which the financial market affects economic activity (Arestis and Demetriades, 1997; Arestis, Demetriades and Luintel, 2001). But he has also contributed, and today perhaps this is what makes, if possible, Philip’s work even more attractive, to the explanation of the inherent risks arising from untrammelled domestic and international financial liberalization. What makes Philip Arestis different from most authors on these topics is that his Post Keynesian background gives him the needed tools to explain the inherent problems of financial markets, their inefficient working due to the existence of uncertainty, and, consequently, their potential negative consequences in the form of financial crises and the influence that a right institutional framework has on its working (Arestis et al., 2005; Arestis and Stein, 2005). Actually, the current crisis is a good example of the lessons to be drawn from Philip Arestis’s work.