Financial Liberalisation and Domestic Saving in Economic Development: An Empirical Test for Six Countries

Shigeyuki Abe, Maxwell J. Fry, Byoung Kyun Min, Pairoj Vongvipanond, Teh-Pei Yu


Despite a voluminous literature stressing the importance of
financial development in the process of economic growth, a convincing
theoretical framework was lacking until the recent publications of
McKinnon [19] and Shaw [25]. Indeed, neoclassical growth theories
provide, in the main, a negative role to the monetary process. Here, a
reduction rather than an increase in real returns on financial wealth
stimulates saving and investment. McKinnon and Shaw both take direct
issue with the neoclassical proposition, showing that crucial
assumptions in this paradigm are erroneous in the context of less
developed countries. McKinnon produces an alternative model in which
real money balances are complements rather than substitutes to tangible
investment. Shaw rejects neoclassical growth models in favour of the
debt-intermediation view which he himself pioneered in the

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