Guyana's Post-Liberalization Stagnation: Real Exchange Rate or Oligopolistic Banking?

Kyle Crandell

Date of Award

2009

Document Type

Thesis

Degree Name

Bachelors

Department

Social Sciences

First Advisor

Khemraj, Tarron

Keywords

Financial Liberalization, Development, Exchange Rate

Area of Concentration

Economics

Abstract

This thesis examines the effects of financial liberalization policies on a small open economy. Building off the work from past studies, the theory of foreign capital inflows and its effects on the real effective exchange rate is used to explain growth patterns in this study. Foreign capital inflows cause a real appreciation of the real exchange rate, which should lead to decreased economic growth. Additionally, a loan-deposit interest rate spread analysis is used to elucidate how an oligopolistic banking sector adversely affects future growth possibilities. Banks desire a minimum rate of interest before investing in private sector loans, which leaves them with non-remunerative excess liquidity. Many developing countries use the United States 3-month Treasury bill rate as a benchmark rate for their financial systems, and economic growth tends to fluctuate with changes in this rate. An exploration of the interaction between the Guyanese lending rate and the U.S. 3-month Treasury bill rate will determine if such a relationship exists.

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