Khemraj, Tarron (2007): The missing link: the finance-growth nexus and the Guyanese growth stagnation. Published in: Social and Economic Studies , Vol. 57, No. 3&4 (2008): pp. 105-129.
Download (170kB) | Preview
The theory underpinning financial liberalization postulates that unregulated financial markets are growth-augmenting. Guyana has been a model reformer since 1988, implementing market-friendly policies. Growth performance, however, has been subdued. This paper argues that natural entry barriers necessitate an oligopolistic banking structure, which follows a mark-up threshold loan interest rate rule at which business credit is constrained. Empirical validation of the mark-up loan rate comes from a bank excess liquidity preference curve that is horizontal at the high threshold rate. Moreover, the flat curve signifies that non-remunerated excess liquidity and interest paying business loans are perfect substitutes at the threshold loan rate. Once business credit is restricted, banks hold excess liquidity and/or foreign assets. Therefore, the Guyanese economy has evolved from a regime of government financial repression to private oligopoly bank stagnation; hence the missing link connecting finance and growth.
|Item Type:||MPRA Paper|
|Original Title:||The missing link: the finance-growth nexus and the Guyanese growth stagnation|
|Keywords:||Financial liberalization, growth, oligopoly interest rate|
|Subjects:||O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E50 - General
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E40 - General
|Depositing User:||Tarron Khemraj|
|Date Deposited:||07. Aug 2009 00:29|
|Last Modified:||16. Feb 2013 02:20|
Agenor, Richard, Aizenman, Joshua. and Hoffmaister, Alexanter (2004). “The credit crunch in East Asia: what can bank excess liquid assets tell us?” Journal of International Money and Finance, v. 23 (1): 27-49.
Bank of Guyana (2005). Annual Report. Bank of Guyana, Georgetown, Guyana.
Bencivenga, Valerie and Smith, Bruce (1991). “Financial intermediation and endogenous growth.” Review of Economic Studies, v. 58 (2): 195-209.
Chang, Ha-Joon (2006). The East Asian Development Experience: The Miracle, The Crisis and The Future. London: Zed Books.
Chang, Ha-Joon, Park, Hong-Jae and Yoo, Chul Gyue (1998). “Interpreting the Korean crisis: financial liberalisation, industrial policy and corporate governance.” Cambridge Journal of Economics, v. 22 (6): 735- 746.
Claessens, Stijn and Laeven, Luc (2005). “Financial dependence, banking sector competition, and economic growth.” World Bank Policy Research Working Paper 3481, World Bank.
Cleveland, William (1993). Visualizing Data. Murray Hill, NJ: Hobart Press.
DaCosta, Michael (2007). “Colonial origins, institutions and economic performance in the Caribbean: Guyana and Barbados.” IMF Working Paper WP/07/43, International Monetary Fund.
Das, Udaibir and Ganga, Gobind (1997). “A Retrospect and prospect on the reform of the financial sector in Guyana.” Social and Economic Studies, v. 46 (2&3): 93-129.
Egoume-Bossogo, Philippe; Faal, Ebrima; Nallari, Raj and Weisman, Ethan (2003). Guyana: Experience with Macroeconomic Stabilization, Structural Adjustment, and Poverty Reduction. Washington, D.C.: International Monetary Fund.
Faal, Ebrima (2003). “Currency demand, the underground economy, and tax evasion: the case of Guyana.” IMF Working Paper 03/7, International Monetary Fund.
Fry, Maxwell (1995). Money, Interest, and Banking in Economic Development, 2nd edition. Baltimore: Johns Hopkins University Press.
–––––. (1982). “Models of financially repressed developing economies.” World Development, v. 10 (9): 731-750.
Ganga, Gobind (1998). “Stabilization and financial adjustment in Guyana.” Money Affairs, v. 11: 147-168.
Grabel, Ilene (1995). “Speculation-led economic development: a Post-Keynesian interpretation of financial liberalization programmes in the third world.” International Review of Applied Economics, v. 9 (2): 27- 149.
Kaminsky, Graciela and Reinhart, Carmen (1999). “The twin crises: the causes of banking and balance of payments problems.” American Economic Review, v. 89 (3): 473-500.
Khemraj, Tarron (2010). “What does excess bank liquidity say about the loan market in Less Developed Countries.” Oxford Economic Papers,forthcoming.
Khemraj, Tarron (2009). “Excess liquidity and the foreign currency constraint: the case of monetary management in Guyana.” Applied Economics, forthcoming.
Khemraj, Tarron (2007). “Monetary policy and excess liquidity: the case of Guyana.” Social and Economic Studies, v. 56 (3): 101-127.
Klein, Michael (1971). “A theory of the banking firm.” Journal of Money,Credit and Banking, v. 3 (2): 205-218.
Levine, Ross (1997). “Financial development and growth: views and agenda.” Journal of Economic Literature, v. 35 (June): 688-726.
McKinnon, Ronald (1973). Money and Capital in Economic Development. Washington, D.C.: The Brookings Institution.
Pantin, Dennis (1995). “Industrial policy in the Caribbean in a time of liberalization, globalization and regional blocs.” Reprinted in D. Pantin (ed.) The Caribbean Economy: A Reader, Ian Randle Publishers Limited, Kingston, Jamaica, 2005.
Reinert, Erik (2007). How Rich Countries Got Rich and Why Poor Countries Stay Poor. New York: Carroll & Graf Publishers.
Rodrik, Dani (2007). One Economics, Many Recipes: Globalization, Institutions, and Economic Growth. Princeton: Princeton University Press.
Rodrik, Dani and Subramanian, Arvind (2009). “Why did financial globalization disappoint?” IMF Staff Papers, advanced online publication.
Shaw, Edward (1973). Financial Deepening in Economic Development. New York: Oxford University Press.
Staritz, Cornelia, Atoyan, Ruben and Gold, Judith (2007). “Guyana: why has growth stopped? An empirical study on the stagnation of economic growth.” IMF Working Paper WP/07/86, International Monetary Fund.
Sundaram, Jomo (1998). “Financial liberalization, crisis, and Malaysian policy responses.” World Development, v. 26 (8): 1563-1574.
Thomas, Clive (1989). “Foreign currency black markets: lessons from Guyana.” Social and Economic Studies, v. 38 (2): 137-184.
Vives, Xavier (2001). “Competition in the changing world of banking.” Oxford Review of Economic Policy, v. 17 (4): 535-547.
Weisman, Ethan (2003). “Sources of economic growth in Guyana.” In: P. Egoume-Bossogo, E. Faal, R. Nallari, and E. Weisman (eds.) Guyana: Experience with Macroeconomic Stabilization, Structural Adjustment, and Poverty Reduction, International Monetary Fund: Washington, D.C.
Wicksell, Knut (1907). “The influence of interest rate on prices.” Economic Journal, v.17: 213-220.