The impacts of financial liberalization on developing countries and Turkey

Financial liberalization, in a broader sense, is comprised of such components as minimization or elimination of constraint to the activities of institutions with various qualities and exchange rate controls; minimization of entry barriers to foreign institutions for gaining access to domestic financial system and reduction of high taxation on financial transactions. According to McKinnon - Shaw hypothesis, as the main milestone of financial liberalization approach, more efficient resource allocation and more rapid economic growth would be attained via termination of financial repression and increase in savings and investments due to the applications of financial liberalization policies. Financial liberalization policies of developed countries? agenda during the 1970s had also been applied in developing countries throughout the 1980s. Beginning with 24th January 1980 decrees, these policies are put into practice and various financial reforms are realized for Turkish economy. The aim of this study is to analyze the impacts of financial liberalization policy applications on economic growth during post-1980 era in Turkey and other developing countries. Following the introduction, concept of financial liberalization in the light of related theoretical and critical approaches is mentioned in the second chapter of this study. In the third chapter, financial liberalization-related realized reforms in Turkish economy and their results are emphasized. The fourth chapter depicts the findings of panel data analysis for the relationship between financial liberalization level and economic growth. The final chapter contains conclusion and recommendations.Keywords: Financial Liberalization, Financial Repression, McKinnon-Shaw Model, Economic Growth, Developing Countries.