• Financial liberalisation

Financial liberalisation

This paper evaluates the outcomes of liberalisation by examining the experience of 19 African countries that have liberalised their economies. It compares the records of these sample 19 countries for the periods before liberalisation (1965-1985), and after liberalisation (1996-2005).

It is argued that Sub-Saharan Africa’s long-term development, including attainment of the Millennium Development Goals (MDGs) and continued progress beyond 2015, depends on mobilising domestic financial resources and channeling them to productive private and public investment. Liberalisation has modestly reduced the substitutive relationship between public and private savings and increased the correlation between private credit and investment. But it has been negatively correlated with both liquidity and private-sector credit expansion and has had no effect on growth.

Key areas of analysis include:

• private and public savings - total domestic savings for these countries peaked at 14 per cent of GDP in 1974 and declined to a nadir of just over seven per cent in 1982
  
• private investment - total Investment has followed a similar pattern to that of savings, but even a recent modest rise has not brought it back up to the peaks of the late 1970s, which exceeded 20 per cent
  
• the liquidity ratio-under liberalised finance, the real rate of interest was the most important determinant of growth in liquidity whereas during financial ‘repression’, it was the level of income that mattered - however, overall, liberalisation was correlated with slower growth in liquidity whereas ‘repression’ was correlated with faster growth
• economic growth - neither ‘repressed’ nor liberalied finance was correlated with growth. In general, the rate of investment and growth in OECD countries were the important determinants.
  

• Full text of document
• Publisher details
• Send to a friend