Ending Financial Repression:
The Role of Globalization
Good investments make people productive, and greater productivity is the road to riches. But good investments can occur only if funds are channeled to those with good investment opportunities via an effective financial system. To achieve this goal, disadvantaged nations must end financial repression and promote financial deepening. How exactly can they do this?
The key to ending financial repression is the development of institutions that enable the financial system to work well. If the development of such institutions is so important to improving poorer countries' well-being, why doesn't it happen? As we have seen, setting up the infrastructure for an efficient financial system is by no means easy: it takes time for institutions to evolve and adapt to local circumstances, to particular cultural and historical conditions. In addition, powerful elites in disadvantaged countries often oppose the necessary reforms because such changes will weaken their power or allow others to cut into their profits. How can poorer countries overcome these obstacles? How can they redistribute power so there is the political will to promote institutional reform? The answer is globalization.
The basic principles for developing an institutional infrastructure that fosters financial development were developed in detail earlier in the book. Let's review them briefly here.