Financial Reform - Literature Review on Theory and the Experiences of Developing Countries: The Case of Egypt

Abstract

Keynes (1937), Tobin (1965) and their followers believe that financial repression reflects on higher savings, investment and economic growth through monetary expansion and by lowering interest rates. Financial liberalization theorists (such as McKinnon and Shaw 1973) contested this position, emphasising the need for a determined interest rate, in order to ensure better intermediation and a more effective allocation of financial resources, especially in developing countries. The experience of Egypt — which has followed a financial reform program as part of its economic reform since the 1990’s supports the view that financial development contributes to the momentum of economic growth.

Keywords: Financial reform, repression, financial liberalization, McKinnon-Shaw hypothesis, Egyptian financial reform program

JEL Classification: E44, G0, G18, O11, O16