THE EFFICACY OF FINANCIAL LIBERALISATION IN DEVELOPING COUNTRIES: A REVISIONIST VIEW

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Abstract

This paper takes stock of some of the challenges facing the efficacy of financial liberalisation in developing countries from a theoretical perspective. The study has been motivated by the current debate on the efficacy of financial liberalisation, on the one hand, and the painful experiences some of the countries have had with the liberalisation of their financial sector, on the other hand. In particular, the current global financial crisis has made it worthwhile to revisit the financial deregulation theory. The study begins with a review of the evils of financial liberalisation; it then proceeds to the case for and against financial liberalisation. The paper finds that while there is a sufficient body of literature in support of the financial liberalisation policy, the theoretical constructs against this policy are steadily growing in number and substance. Whether financial liberalisation indeed contributes to economic growth, therefore, remains an empirical issue. The paper recommends that some friendly government interventions - in the form of financial restraints - should be implemented alongside financial liberalisation in developing countries, in order to protect the financial market against any mispricing or misalignments due to information asymmetry, moral hazards or speculative activities.

Keywords: Financial Liberalization, Developing Countries, Financial Markets

How to cite this paper: Odhiambo, N. N. (2010). The efficacy of financial liberalisation in developing countries: A revisionist view. Corporate Ownership & Control, 8(1-2), 321-327. https://doi.org/10.22495/cocv8i1c2p5