Interest rates, savings, and growth in LDCs: An assessment of recent empirical research

Abstract

The McKinnon-Shaw proposition of a positive interest responsiveness of savings and the beneficial effects of financial liberalization policies on economic growth has been an issue of considerable debate and a foundation of policy practice in less developed countries (LDCs). This paper aims at assessing critically a number of recent contributions to the empirical literature dealing with this proposition. The need to advance more knowledge in this field on empirical grounds is argued despite the data, conceptual and methodological shortcomings faced in making these efforts. The main conclusion of this paper is that the debate is far from being settled, even for those countries on which empirical research has focused. © 1988.