Impact of Financial Regulations

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2.2- INSTITUTIONAL DEVELOPMENT Impact of Financial Regulations The government in most developing countries intervened to provide more socially-optimal levels of capital, synchronized with government development planes, and to provide finance for government budget deficits through domestic financial markets (Alam,1989;Amsden,1989; Bradford,1986,1987;Cho and Kin 1991; johnson,1985; and Lee,1992).The financial regulations were designed and implemented to restrain market forces in the allocation of resources , to encourage economic growth ,ensure financial stability and achieve other national goals. Researchers (Romer, 1986; Eckaus, 1989; Solow, 1990; Murphy et al., 1989) justified the rationale for government intervention in the context of industrialized nations. The regulations also had frequently been justified in developed economies as a mean of maintaining financial stability (Cheng, 1986).However; the historical evidence did not fully endorse the view that government intervention ultimately delivers faster economic growth. The intervention led to more intervention and soon the financial markets were dominated by government interference in terms of both the direction and price of credit. A prevalent feature of this period was a very slow results from controls on the financial system, and often a negative interest rates on both deposits and loans (Blejer, 1983; Diaz-Alejandro 1985; Hanson and Neal, 1985;Fry, 1990; and Hanson and Rocha,1986). Business in these countries
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