Original scientific paper
https://doi.org/10.1080/1331677X.2017.1355252
Why governments may opt for financial repression policies: selective credits and endogenous growth
Murat A. Yülek
orcid.org/0000-0001-7533-5882
; Center for Industrial Policy and Development, Istanbul Ticaret University, Istanbul, Turkey
Abstract
Financial repression policies (lowering real interest rates, selective
credits and other restrictions on financial markets, products and
institutions) have been widely discussed in the economic literature
during the last four decades. A key question is ‘why governments
would opt for financial repression policies in the first place’? As an
answer, governments’ desire to obtain rents from the financial system
or to manage public debt servicing have been suggested as the
typical underlying incentives. It has been argued in 1970s and 1980s
that especially in developing economies, financial repression would
have negative consequences on economic growth and financial
development, although more recently financial repression policies are
back as governments in the developed economies aim at obtaining
low-cost funds from the financial markets in the aftermath of the
global financial crises.In this article, a simple two-sector model is set up
in order to show that governments may institute financial repression
policies to internalise production and investment externalities. It
is shown that such a government policy is welfare improving and
abolishment of selective credits may cause welfare loss. The model
also provides a case where financial policy is designed according to
the priorities of industrial policy.
Keywords
Financial repression; financial policy; industrial policy; selective credits; endogenous growth; economic development
Hrčak ID:
193189
URI
Publication date:
1.12.2017.
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