An Analytical Approach to Interest Rate Determination in Developing Countries

Mohsin S. Khan

Abstract


The role of interest rates in the development process has been
studied extensively in recent years. Following upon the seminal work of
McKinnon (1973), there have been a number of theoretical and empirical
studies examining the relationship between financial development and
economic growth, the effect of changes in real interest rates on savings
and investment, and more generally, the pros and cons of a
market-oriented financial system.1 Broadly speaking, there is now ample
empirical evidence supporting the original claim by McKinnon [10] that
there is a positive association between the degree of development of the
financial sector, resulting primarily from a freer structure of interest
rates, and the overall economic performance of developing
countries.

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DOI: https://doi.org/10.30541/v24i3-4pp.481-495

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