Financial Repression and Economic Growth

Nouriel Roubini and Xavier X. Sala-i-Martin

Journal of Development Economics; v39 n1 July 1992, pp. 5-30.


We survey the literatures that study the relation between the trade regime and growth and financial development, financial repression, and growth. We analyze the relation between the trade regime, the degree of financial development and the growth performance of a large cross-section of countries. The systematic finding is that there is a negative relation between trade distortions and growth. We also present some variables that capture the degree to which the financial sector is distorted. We find that financial repression has negative consequences for growth. We also find that inflation is negatively related to growth. We interpret this relation, however, as symptomatic rather than causal. We show that once we hold constant measures of the trade regime and financial repression, the regional dummies for Latin America are no longer significant. Thus, the poor performance of the Latin American countries over the last few decades is related to the trade and financial policies pursued by their governments.


Economic Development: Financial Markets; Saving and Capital Investment, O160. Macroeconomic Analyses of Economic Development (includes macro models and analyses of patterns and determinants of development), O110. Business Investment, 5220. Economic Development Models and Theories, 1120.