FINANCIAL LIBERALISATION, CREDIT RATIONING AND SLOW GROWTH IN MEXICO: TESTING THE MCKINNON-SHAW HYPOTHESIS

Abstract

The Mexican experience with financial liberalisation provides an interesting case of study for countries facing financial instability problems. The aim of this paper is twofold: first, to provide an overview of the macroeconomic effects of the lending boom associated with Mexico's transition from a financially repressed regime to financial liberalisation. And second, to empirically assess whether the McKinnon-Shaw hypothesis holds in this case. It is argued that financial liberalisation tends to generate financial fragility, credit rationing and long-run slow growth.