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Financial Sector Reforms in Developing Countries with Special Reference to Egypt

  • Philip Arestis

Financial reforms, and financial liberalization in particular, have been at the root of many recent cases of financial and banking crises. In several countries financial reforms allowed real interest rates to reach levels exceeding 20 percent per annum in some cases; in other cases, banking and financial crises led to currency crises. National governments either abandoned attempts at implementing financial liberalization (some countries even reimposed controls) or were forced to intervene by nationalizing banks and guaranteeing deposits. This paper draws on this experience to show that the main cause of these crises is the application of a theoretical framework that is predicated on a number of assumptions that are problematic and based on weak empirical foundations. Consequently, it should be no surprise that the reforms were often unsuccessful and in many cases led to severe financial crises. We will also argue that the case of Egypt is particularly interesting in this regard, since although financial reforms have been enacted, the experience has been rather different: there has been no accompanying financial crisis.

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Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_383.

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Date of creation: Jul 2003
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Handle: RePEc:lev:wrkpap:wp_383
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  1. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
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  3. Demirguc-Kent, Asli & Detragiache, Enrica, 1998. "Financial liberalization and financial fragility," Policy Research Working Paper Series 1917, The World Bank.
  4. Panicos O. Demetriades & Philip Arestis, 1996. "Financial Development and Economic Growth: Assessing the Evidence," Keele Department of Economics Discussion Papers (1995-2001) 96/16, Department of Economics, Keele University.
  5. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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  7. Singh, Ajit, 1998. "Asian capitalism and the financial crisis," MPRA Paper 54932, University Library of Munich, Germany.
  8. Philip Arestis, 2002. "Financial crisis in Southeast Asia: dispelling illusion the Minskyan way," Cambridge Journal of Economics, Oxford University Press, vol. 26(2), pages 237-260, March.
  9. Arvind Subramanian, 1997. "The Egyptian Stabilization Experience; An Analytical Retrospective," IMF Working Papers 97/105, International Monetary Fund.
  10. Sebastian Edwards, 1989. "On the Sequencing of Structural Reforms," NBER Working Papers 3138, National Bureau of Economic Research, Inc.
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  12. Diaz-Alejandro, Carlos, 1985. "Good-bye financial repression, hello financial crash," Journal of Development Economics, Elsevier, vol. 19(1-2), pages 1-24.
  13. Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-61, September.
  14. Philip Arestis & Panicos O. Demetriades & Kul B. Luintel, 1997. "Financial Development and Economic Growth: the Role of Stock Markets," Keele Department of Economics Discussion Papers (1995-2001) 97/05, Department of Economics, Keele University.
  15. McKinnon, Ronald I & Pill, Huw, 1997. "Credible Economic Liberalizations and Overborrowing," American Economic Review, American Economic Association, vol. 87(2), pages 189-93, May.
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