Financial repression and economic growth

Financial repression is a deliberate and calculated distortion of financial prices by regulatory authorities in an economy. It includes administrative tinkering by governments with financial prices such as interest rates and exchange rates. Both McKinnon (1973) and Shaw (1973) agree that economic growth is severely hindered in a repressed financial system by the low level of savings rather than by the lack of investment opportunities. In the McKinnon–Shaw model, financial saving responds in a positive way to the real rate of interest on deposits as well as the real rate of growth in output.

Moreover, investment is negatively related to the effective real rate of interest on loans, but positively related to the growth rate of the economy. In the McKinnon–Shaw literature, the relationship between economic and financial development is based on the debt-intermediation theory of Gurley and Shaw (1955). An increase in saving relative to the real economic activity leads to an increase in the level of financial intermediation and consequently leads to an increase in investment.Furthermore, an increase in productive investment raises per-capita income. Any control of nominal interest rate is an attempt to slow capital accumulation because it leads to a reduction in the real rate of return on bank deposits which discourages saving.

McKinnon (1982) argue that one of the reasons for financial repression is to give government power to control chronic fiscal deficits. Cho (1986) justifies financial repression on the ground that several developing countries have poorly developed equity markets coupled with a preponderance of bank loans in corporate financing. The author argues that full-scale liberalization of the banking sector would not achieve an efficient allocation of capital unless a well-functioning equity market is in place. Another thread of argument in favor of financial repression is premised on imperfect information flow in most developing economies. Stiglitz (1993) argues for the use of interest rate restrictions to deal with moral hazard, which arises when banks take excessive risk.

In a financially repressed environment, as is the case in most developing countries, administratively determined nominal interest rates imply that real rates are pushed below their equilibrium levels. When interest rates are set too low, it produces a disequilibrium credit rationing. For example, business operators who would have been denied loans are given access to the financial markets, thus, creating an adverse selection problem. According to Fry (1997), the use of interest rate ceilings in a repressed system, distorts the economy in four critical ways. Current consumption is favored compared to future consumption. Instead of lending to financial institutions via deposits, potential investors engage in relatively low-yielding direct investments.

Because of the low level of interest rates, borrowers would favor capital-intensive projects. Finally, the pool of potential borrowers, is dominated by entrepreneurs who possess, low-yielding projects. Umoh (1995) notes that capital formation framework occurs within the financial system where financial institutions perform their intermediation function. Moreover, financial system reforms are motivated by the desire to improve the efficiency and stability of the financial structure. In most cases, such reforms are aimed at ensuring that market forces perform greater roles in the allocation of resources. Umoh further identifies the objective of financial reform as: improvement in the efficiency of resource allocation through the market system. In addition to the aforementioned, greater domestic savings mobilization for investment and growth using market-determined interest rates. Finally, financial reform is based on laying a foundation for sustainable non-inflationary or minimal inflationary growth.

The personal communications revolution may have been launched with the advent of digital cellular but this was to be only the beginning of the story. The Tiller application' of voice telephony was soon complemented by text messaging, which was in effect an early form of data service. Developers of the GSM system might have been surprised by the fervent adoption of the short messaging service (SMS) among the population but they were also thinking ahead phone number tracker. Following the initial. deployment of second generation networks in the 1990s came the halfway generation — sometimes referred to as 2.5G — that would enable more advanced mobile data services such as picture messaging and simple email and Internet services well before the full range of '3G' services was expected to arrive on the scene.

This was seen as a transition phase but has since become an important development unto itself because it again changed the mobile phone — this time from a voice-centric device for talking, into an increasingly data-centric device for multitasking. Mobile operators and consumers soon discovered that new features such as multimedia messaging, downloadable games and mobile Internet access would change forever again our relationship to the telephone. This chapter introduces the world of 2.5G services, highlighting key technical terms and concepts. Another important topic in this chapter is the definition of mobility and the difference between wide area networks and local area networks (discussed later in the book). The chapter also considers some of the early air interface standards and applications that were developed to provide mobile access to more advanced data services, including access to the Internet. These techniques are still important because they provide a bridge between digital voice and digital data services in the 2.5G period and a foundation for the Cardan Shaft Manufacturer in India transition to third generation mobile phones,. When using the term 'wireless' communications it is often necessary to make conceptual distinctions to avoid confusion in meaning. For instance, not all wireless systems are necessarily mobile wireless systems and national band plans will.