Financial economics 1

Translated by:

 Mahdi Taqavi, Azam Ahmadiyan, Hossein Amiri

Elm Publication

The importance of financial markets development in economics is among the key issues in economy of development. The possibility and different contexts of investment have been formed with the development of financial markets and private sector is able to select types of strategies tailored to its needs for saving in terms of lower risk. Also, it can increase economic growth by equipping resources obtained from fund savers and directing them into profitable economic activities with high added value.

Therefore, according to the importance of financial markets issue, it has been tried in this book to investigate the effect of financial liberalization and financial repression on different economic macro indicators by using different articles. Here is a summary of some of the articles:

The relationship between financial development and economic growth are referred in the article of “Financial liberalization and the relationship between finance and growth” by Philip Arsetis. At first, financial liberalization has been explained with historical approach. In the following the theory and policy implications of financial liberalization critically have been examined and the problems of have been referred. Finally, the author concludes through designing related issues with financial liberalization and explains the ideas of scholars in terms of financial liberalization.

Financial limitations and regulations and the impact that they can have on financial policies and finally economic development have been discussed in “financial reforms and liberalization” article written by J. Kitany and D. Kavalv In the following, experimental studies regarding financial reforms and repression, and impacts of internal liberalization, incomplete information, moral hazard, interest rates and supervision of banks have been discussed. Finally, the relationship between fiscal policy and economic growth is concluded and non-economic institutions are referred.

Financial liberalization in the developing countries and its inappropriate results have been discussed in an article of “financial liberalization or financial Repression” written by James A.G. Benefits and costs of financial liberalization, the effectiveness of reforming plans which is dependent on the power and strength of financial sector policies are other issues discussed in this chapter. The increase of legal reserve has a reverse effect on financial system development and control of interest rate, liquidity constraints and credit programs have positive effects on it. Finally, the author concludes that some financial system constraints help the improvement of financial development.

Consumption fluctuations in India are investigated in the article of “growth instability and financial repression” written by James A.G and it follows testing economic instability and economic growth, and financial repression and instability in private consumption have been considered. The ultimate result in this research is that financial repression is less associated with instability in consumption. The current analysis shows that financial liberalization can reduce consumption instability in a case that India be released adequately.

The relationship of financial development, economic growth and growth fluctuations of 81 countries during 1962 to 2000 is investigated in the model of Panel Var in “financial, growth and fluctuations” written by Yan. It discovers positive causality between financial development and economic fluctuations. According to this research, financial development is useful for countries that they are in the first stage of industrialization. Moreover, some structural qualities and factors of economic environment special for each country such as degree of banking centralization and legal environment are also important and effective in causality of financial development, growth and economic fluctuations.

“The role of financial factors in economic development” article written by R. Dornbusch studies financial factors in economic development of countries, they have important and effective role and they are different around the world. Unsuppressed financial markets have fundamental role in the allocation of investments in Asia while the role of financing inflation i.e. using budget deficiency for increasing economic growth is very important in Latin America. These two approaches are discussed in this research. Finally, the author concludes that using budget deficiency method creates high inflations among financing methods. Financial liberalization leads to acceleration in inflation and instability when financial situation is inappropriate.