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This paper provides a comprehensive review of the literature on the dual effect of financial liberalization over more than three decades, starting from the independent contributions of Ronald I. McKinnon and Edwards S. Shaw on this topic. In this regard, the paper revisits the effects of financial liberalization and governance on growth. Moreover, it presents a summary of current research in this area, covering the conclusions of the endogenous growth models, issues on volatility and the relationship between financial liberalization, institutions, governance and economic growth. To study data of 54 countries from 1985 to 2010 and because the nexus between financial liberalization and economic growth is nonlinear and depends on specific national factors especially institutions quality and governance, the Panel Smooth Transition Regression (PSTR) model is used. The main result of this study shows that a better contribution of financial liberalization to economic growth requires the interrelationship and the complementarity between financial liberalization and governance. Overall, regardless of the level of liberalization, output income is always higher with better governance and institutions.

The end of the Bretton Woods era and the emergence of neoliberal economics resulted in profound transformations in domestic economies and international economic relations. The keystone of these transformations was the liberalisation of domestic and international financial markets. Faulty theoretical foundations and the resulting catastrophic policy failures prompted a vast literature by critical economists on the international financial architecture and domestic financial structures best suited for economic development. In recent decades, debate has also centred on what has been labelled “financialisation”, i.e. the increasingly central role played by financial markets and transactions in economic activity. In this paper we try to ascertain whether Argentina experienced a process of financialisation between 1990 and 2009 and what impact, if any, it has had on Argentine banking. We conclude that there has been a strong process of financialisation in Argentina in the post 2001-2002 crisis period. We also explore in a preliminary fashion potential reasons behind Argentine post-crisis financialisation. The paper concludes by suggesting that it is time to consider alternative banking arrangements if development finance is to become a policy priority.