Finance The Development Of Path Dependence And Financial Liberalization

The most famous economists who studied financial development in the developing countries are Mackinon and Edward Shaw. They considered that internal finance was prevalent in the developing countries so that money and real capital were complementary to each other. Increasing real interest rate could attribute to increasing saving rate and capital accumulation. Therefore, the developing countries should reform financial system, call off controlling over interest rate, foreign exchange and bank to motivate full competition in financial market. They held that if interest rate control was abolished, saving rate would rise and only those borrowers with higher capital efficiency could get loan, this policy would enhance capital allocation efficiency.Mackinon and Shaw's theories of financial development were based on philosophy of laissez-faire. However, they just noticed the exdogenous constraint in financial development and did not take note to the indogenous constraint resulted from moral hazard and adverse selection that would make financial market failure. Secondly, their theories of financial development did not pay attention to the micro-basis of financial stead development and ignored that capital market should developed leadingly in the process of financial liberalization. Moreover, Mackinon and Shaw advocated big bang financial liberalization all at once in form of shock therapy. They only explored macro policies such as fiscal control and foreign trade liberalization and neglected the order of financial liberalization in financial sectors.I hold that it is important to explore financial development and stability policies from prospective of micro mechanism as well as to pioneer macro stability policies such as fiscal and monetary policy. Only if placing accent on macro stability policies and neglecting micro root which financial liberalization base on, finance disorder, credit system collapse and finance crises are inevitable. In view of this point, financial development path in angle of micro mechanism is explored in this dissertation.Financial development path is studied from following three aspects: Firstly, being consistent with Pattrick, demand following financial development is told from supply leading financial development in view of the relationship between finance and real sector. Any of initial emergence of financial arrangement is definitely demand following and then it will change into supply leading financial development soon. Especially, in pursuit of maximized profit, financial institution will actively explore financial services that real sectors need potentially. But in any case, supply leading financial development must base on demand following financial development. Secondly, the relationship between demand for financial services and growth of economy and cost of entrance to financial market is analyzed and how demand for financial assets effect the change in financial structure contingent upon economic development is studied. Lastly, firm governance structure and it's related finance arrangement after investment separates from saving are studied. The following conclusion is drawn that the evolution of enterprises system is resulted from the changes in methods of finance to cope with moral hazard and adverse selection under condition ofinvestment isolating from saving.Thus, the developing and the transitional countries should liberalize financial system step by step in consistent with natural path of financial development. In the process of financial liberalization, such sectors that related mostly to real sectors should be liberalized at first and then extend to the sphere of sheer symbol. Based on such logic ground, I hold that real sectors should be liberalized firstly. It is imperative to deal with financial,fragility and to decrease agency cost by means of capital market development to liberalize real sectors. Moreover, the development of capital market is important channel for government to draw back from non-natural monopoly purview. Therefore, capital market should be...