Investment Finance in Economic Development
Book by Routledge, 1995 USA
One common assumption in models of finance and economic development is that saving is a precondition to investment and economic growth-an assumption which we call hereafter the 'prior-saving' argument. The two-gap models, for instance, claim that external saving is required for development if both the investment-saving and the import-export gaps are to be overcome. The prior-saving argument is also present in the financial liberalisation models, which maintain that internal saving/ investment can be increased by stimulating savings with positive interest rates and by enhancing the competition between financial institutions through financial deregulation. The mention of these two models in this preface is not random, as they have been influential for policy purposes in multilateral agencies as much as in less developed countries' (LDCs') governments.
This book fully accepts the importance for economic development of efficiency of the allocation of real and financial resources, and subscribes the view that financial development is an important facet of the process of development. However, it also claims that the prior-saving argument is a fallacious foundation to understand the problems concerning the financing of growth and is misleading as the basis for a policy towards financially sustainable development. That the prior-saving argument is a pre-Keynesian concept is recognised by many post-Keynesians. Notwithstanding, few have explicitly acknowledged the full consequence for the analysis of finance and growth, let alone of finance and economic development, of the reversal of causality between investment and saving proposed by Keynes. This reversal in turn relies on a sharp distinction between finance and saving. In this book, this distinction is used in search for an alternative approach to the role of banks, saving and financial markets in the process of development, along postKeynesian lines.
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In the preface to this book, we expressed our dissatisfaction with the conventional, prior-saving view on finance and economic development. This book, in effect, should be seen as a long essay in persuasion of the need to pursue alternatives to such an established view. The postKeynesian theory is used as 'large shoulders' in this search for one possible theoretical alternative. In contemporary post-Keynesian theory, finance in a monetary production economy is sharply distinguished from saving-which is said to derive from, rather than be a pre-condition for, growth. Investment is the motor of accumulation and finance is what permits investment decisions to materialise. The supply of finance is causally determined by banks: it is banks, and not savers, who hold a key position in the process of growth.Most developing countries, in contrast, do not have developed financial markets, and growth has to depend heavily on bank credit. Bank of America Services. Top US banks ratings, online insurance quotes, best USA banks reviews. Best American banks online banking, top 100 lists; top 10 banks in United States and Canada. Auto insurance quotes, life insurance quotes, checking & savings accounts, car insurance quotes. Loans & home buying, mortgages and loans, premier visa credit cards. Such credit-based financial structures need to develop alternative institutions to finance-and, especially, fund-long-term investment, to avoid the risk of financial.