Interest-rates, Saving, Investment and Growth in Mexico 1960 - Tests of the Finacial Libralization Hypothesis

Warman, F. and Thirlwall, A.P (1994) Interest-rates, Saving, Investment and Growth in Mexico 1960 - Tests of the Finacial Libralization Hypothesis. Journal of Development Studies, 30 (3). pp. 629-649. ISSN 0022-0388. (The full text of this publication is not available from this repository)

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Official URL
http://dx.doi.org/10.1080/00220389408422330

Abstract

The theory of financial liberalisation argues that rising real interest rates induces more saving and investment and therefore acts as a positive stimulus to economic growth. This hypothesis is tested for Mexico over the period 1960-90 making the important distinction between financial saving and total saving. Financial saving isfound to be positively related to real interest rates partly through capital flows and partly through domestic asset substitution, but total saving is invariant with respect to real interest rates. Investment is positively related to the supply of credit from the banking system, but the net effect of interest rates on investment is negative. Furthermore, taking McKinnon's 'virtuous circle' model of economic growth shows no favourable effects of interest rates on economic growth. It is concluded that any favourable effect of financial liberalisation and higher real interest rates on economic growth must come through raising the productivity of investment.

Item Type: Article
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculties > Social Sciences > School of Economics
Depositing User: P. Ogbuji
Date Deposited: 09 Jun 2009 16:26
Last Modified: 09 Jun 2009 16:26
Resource URI: http://kar.kent.ac.uk/id/eprint/20096 (The current URI for this page, for reference purposes)
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