The paper "Financial Liberalization and Financial Deepening" is a great example of a report on macro and microeconomics. Financial liberalization can be described as the procedure of enabling markets to establish who attains and grants credit and at what rate. Extensive financial liberalization comprises six major aspects: the removal of credit controls, the deregulation of interest rates, free admission into the banking zone, bank independence, personal ownership of banks, and the liberalization of worldwide fund flows. The major aim of financial liberalization is to create a more competent, and inherent financial system, able to sustain the development of private sector ventures. Interest cost decontrols lead to extreme real interest rates for savers and a rise in assets in the economic system which can serve as loans for investment ventures.
Financial liberalization brings an end to the custom of giving out low-cost credit to favored sectors. This enhances the allocation of capital in the economy, as resources are allocated to most profitable sectors. Financial liberalization means better access to international resources, made possible by an expanded role for overseas banks and non-bank financial institutions, could be the third benefit of financial liberalization (Stiglitz, 2000). McKinnon and Shaw found that low returns promoted investment, but not savings, generating a gap among preferred investment and domestic savings accessible to finance investment.
This gap influenced the rationing of credits, or dependence on overseas borrowing. They also found out that cheap capital promoted capital-intensive procedures of production. Cheap loan rationed to particular sectors of the economy resulted in an incompetent distribution of loans, instead of the market distribution of loans to greatest return investments. The result of economic liberalization has led to a rise in the private resources flow and changing the way in developing Nations secure foreign capital, especially during the 90s.
Foreign financial crises become common during this period, for instance, Mexico in 1995, Asia in 1997, and Argentina in 2001.The discussion on the influence of financial liberalization can be summarized into arguments surrounding current accounts and economic accounts. Opinions regarding the current accounts converge around its positive impacts on development and welfare.
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