Review Article: Financial Liberalization, Development, and Marketization: A Review of McKinnon's The Order of Economic Liberalization: Financial Control in the Transition to a Market Economy (1991)

We present critical review of McKinnon's (1991) perspective on the correct reform sequence for financially repressed economies is presented, distinguishing between its application to less developed countries (LDCs) and reforming centrally planned economies (RCPEs). Empirical support for McKinnon's view is questioned on microeconomic and political grounds. We evaluate the importance of both predetermined and endogenous political and economic pressures on the reform sequence, underscoring some unique conditions of the RCPEs: greater systemic uncertainty, for example, that impose limitations on financial liberalization.