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An Institutional Approach to Financial Development

An Institutional Approach to Financial Development

(p.173) Chapter Seven An Institutional Approach to Financial Development
Beyond the World Bank Agenda
Howard Stein
University of Chicago Press

This chapter argues that the World Bank reform agenda for the financial sector has been driven largely by financial repression theory, despite its rather shaky theoretical premises. It begins with a critical review of the theory underlying orthodox financial liberalization. It then discusses the way in which the theory has influenced the World Bank and the way the Bank has explained the failure of financial sector loans, while adhering to the same core orthodox policies. Next, it examines the influence of new institutional economics on the Bank's approach to financial liberalization. The latter part of the chapter considers an institutional approach to finance and attempts to generate an alternative strategy based on the institutional matrix developed in Chapter 5.

Keywords:   financial reform, World Bank, financial repression theory, financial liberalization, new institutional economics

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