Financial Reforms: Benefits and Inherent Risks
Financial reforms have been controversial in many countries. This paper explores the impact of financial reform on economic growth using a modified version of the conventional growth model, developed by Robert Solow.
It argues that the costs of any reform must be compared with its benefits and that under some circumstances, particularly in poor countries, "best-practice" financial reform may have negative rather than positive consequences. The model provides a theoretical case for gradualism in reform under some circumstances. The predictions of the growth model are compared with experiences in several countries.
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