Financial constraints on economic development: Theory and policy for developing countries

Hermann, Jennifer

2014-12

4
LC/G.2629-P

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This article contains a theoretical and policy analysis of the financial constraints on economic development in developing countries. Following a Keynesian interpretation, it concludes that financial policies are needed to relieve these constraints, given the natural tendency of financial systems to operate in ways that are dysfunctional to economic development. It then proposes three lines of policy that take account of the special characteristics of developing countries: resource allocation policies targeted at segments of strategic importance for economic and financial development; policies to control financial and external fragility; and compensatory policies of a more interventionist cast, in particular directed credit programmes for both public- and private-sector lending to complement resource allocation policies, and countercyclical regulatory barriers so that fragility can be better controlled.

FINANCIAL RESOURCES; MONETARY SYSTEMS; DEVELOPING COUNTRIES; KEYNESIAN ECONOMICS; CREDIT; FINANCIAL SERVICES; FINANCIAL POLICY; DEVELOPMENT FINANCE; ECONOMIC DEVELOPMENT; RECURSOS FINANCIEROS; SISTEMAS MONETARIOS; PAISES EN DESARROLLO; ECONOMIA KEYNESIANA; SERVICIOS FINANCIEROS; CREDITO; POLITICA FINANCIERA; FINANCIACION DEL DESARROLLO; DESARROLLO ECONOMICO;