The Second Generation Of Financial Development Theory And China's Financial Policy

In this dissertation, the whole process of the formation and development of financial development theory is divided into three stages: (1)The first stage is the formation of financial development theory in 1973. The publication of Ronald I. McKinnon's Money and Capital in Economic Development and Edward S. Shaw's Financial Deepening in Economic Development in 1973 marked the formation of financial development theory. Both McKinnon and Shaw focus on "financial repression". (2)The second stage is the initial development of financial development theory in the 1970s and 1980s. Following McKinnon and Shaw, some economists supplement and perfect the McKinnon-Shaw theory under the McKinnon-Shaw framework, and develop some formal macroeconomic models, i.e. they extend the McKinnon-Shaw theory. In these models, the key instrument of financial repression is a deposit rate of interest fixed by government authorities below its free-market competitive equilibrium level. Reserve requirements are sometimes included, but no attention is paid to the nature of banking or financial markets. For the sake of convenience of analysis, we call the McKinnon-Shaw theory and its extensions as the first-generation (or traditional) financial development theory. Furthermore, we call the contributors and supporters of this theory as the McKinnon-Shaw school (abbreviated for the M-S school) or the first-generation (or traditional) financial development theorists. (3)The third stage is the further development of financial development theory in the 1990s. Since the 1990s, some economists develop more complex models that incorporate both endogenous growth and endogenous financial intermediaries (or financial markets) based on several important results of the endogenous growth theory. We call this kind of financial development theory as the second-generation financial development theory (or the financial development theory of the 1990s). In...