Financial Liberalization In Developing Countries, The Theoretical Analysis And Practice

Financial Liberalization first generated in 1970s. Although it was accepted by LDCs until 1980s, it developed very fast. But the result of financial liberalization was mixed, especially in 1990s, with a lot of countries falling into financial crisis. Many economists began to reexamme the role and meaning of financial liberalization, and financial repression theory came back in some countries. My essay aims at affirming the role and meaning of financial liberalization through analyzing theories of financial liberalization and the practices in LDCs, drawing some lessons from the financial failures in LDCs, providing some advices for the financial reform of our country. The whole essay can be divided into two parts: theory (from chapter one to chapter five) and practice (from chapter six to chapter seven). The main contents are as follows:Chapter one focuses on the background of financial liberalization. In 1970s, the situation of the world economy changed revolutionanly, the development of science and technology, the improvement of computer, oil crisis and the emergence of oil dollars, the birth of Eurocurrency Market, the surplus of capital in developed countries, production and market globalization, the advancement of international financial markets, the crash and reestabhshment of international monetary system, the world wide financial deregulation, new-conservatism and economic liberalization , pushed the tide of financial liberalization world-wide spreading. Financial liberalization played decisive role on bank management, interest rate control, the development of no-bank financial institutes and financial business creation. The birth of financial liberalization changed old financial system of DCs and provoked the reform of LDC's financial system. Financial liberalization was the product of that age and inevitable result of economic development and social progress, which could not be separated from the background of macro-economy.Chapter two analyzes the theoretic background and main incipient theories of financial liberalization. In the end of 1960s and the early 1970s, the colonial countries got free one after another. The intellectual climate at this time was one where government intervention was seen as a possible antidote to perceived market failures, and resulted in policy advice that was broadly interventionist. After experiencing a lot of setbacks and failures, people began to realize the weakness and malady of government intervention, which became the withered flower of sunset. Just at this background, McKinnon and Shaw brought forward financial liberalization theory and establish their own model, claiming to liberalize financial markets from law fetters. After this, Kapur, Gaibis, Fry, Mathieson, L.E.Molho, Roubini & Sala-i-Martin, and Takao Fukuchi developed this theory farther and made it worldwide spread.Chapter three provides some opposition to financial liberalization in theory and the advocators' supplements to this theory after its birth. In 1990s, financial liberalization went wrong in some LDCs and faced unprecedented challenge in practice, with some country like Mexico falling into financial crisis circle successively. Meanwhile, a group of opponents emerged, who reappraised financial liberalization from its shortcomings or the reasons that financial liberalization failed, and formed their own theories.Chapter four expounds McKinnon and Pill's overborrowing syndrome. In the end of 1970s and early 1980s, many countries in Latin America fell into senous debt crisis, and in 1990s, Mexico, East Asia, Russia and Brazil encountered financial crisis. The reasons were similar, one common cause of which was that these countries over-relied on borrowing abroad, especially on short-term capital, which would flow out quickly and make many LDCs fall into crisis again and again. Just under this condition, McKinnon and Pill put forward overborrowing syndrome theory, described and analyzed the creation and influence of overborrowing, and gave the corresponding policy measures. This chapter focuses o...