Please use this identifier to cite or link to this item: http://scholarbank.nus.edu.sg/handle/10635/132309
Title: Formal and informal financial markets, and the neo-structuralist critique of the financial liberalization strategy in less developed countries
Authors: Kapur, B.K. 
Issue Date: Jan-1992
Citation: Kapur, B.K. (1992-01). Formal and informal financial markets, and the neo-structuralist critique of the financial liberalization strategy in less developed countries. Journal of Development Economics 38 (1) : 63-77. ScholarBank@NUS Repository.
Abstract: The neo-structuralist critique of the McKinnon-Shaw financial liberalization prescription rests fundamentally on the consideration that formal financial intermediaries have significantly higher reserve ratios than informal ones. However, the economic functions served by these reserves - in terms of 'liquidity enhancement' and 'seignorage creation' - are ignored. Incorporation of the latter function into the analysis leads to the complete neutralisation of the neo-structuralist critique, and incorporation of the former function produces the result that a financial liberalization is unambiguously welfare-increasing. Our optimizing framework also points up an important deficiency in neo-structuralist modelling of substitutions by asset-holders between formal-and informal-sector financial instruments. © 1992.
Source Title: Journal of Development Economics
URI: http://scholarbank.nus.edu.sg/handle/10635/132309
ISSN: 03043878
Appears in Collections:Staff Publications

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