![]() ![]() In a number of developing countries, however, financial liberalization is also a deliberate attempt to move away from “financial repression” as a policy to fund government fiscal imbalances and subsidize priority sectors, a move strongly advocated by the influential work of McKinnon (1973) and Shaw (1973). Generally, the trend towards financial liberalization is part of a broader trend towards reduced direct intervention of the state in the economy. Also, some countries actively promoted the development of local stock markets, and encouraged entry of foreign financial intermediaries. Countries eased or lifted bank interest rate ceilings, lowered compulsory reserve requirements and entry barriers, reduced government interference in credit allocation decisions, and privatized many banks and insurance companies. In the last three decades several developed and developing countries have moved towards liberalization of their financial system.
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