The Effect of Financial Repression on Economic Growth A comparison of Less Developed and Emerging Market Economies

The financial repression literature indicates that government interventions in the financial market, such as interest rate ceilings on bank deposits, high reserve requirements, direct intervention on bank credit allocation, and rules and regulations limiting current and capital accounts would restrict and even repress financial markets leading to negative real interest rates In this research, investigate the relationship between financial repression and economic growth using different indices for financial repression. We use a panel data encompassing 92 countries (including 33 less developed, 38 emerging market and 21 industrialized countries) over the period 1985 to 2005. We find that the negative real interest rates have negative effect on economic growth.