THE SCOPE AND LIMITS OF FINANCIAL LIBERALIZATION IN DEVELOPING-COUNTRIES - A CRITICAL SURVEY

This article reviews the growing literature on financial reform in dev eloping countries. We draw both on the theoretical contributions outli ning the case for and against liberalisation as well as on the experie nce of many developing countries with liberalisation. We argue that th e existence of market failures in financial markets hampers the libera lisation process and indeed suggests that the simple liberalising stra tegy envisaged in much of the literature is inappropriate. We argue in stead for an alternative strategy which integrates some aspects of lib eralisation with the development of appropriate financial institutions designed to serve best the needs of the real economy.