Measurement and Determinants of Financial Repression: Evidence from Developed and Developing Economies

Abstract

Financial repression (FR) has re-emerged as a relevant policy tool in both advanced and developing economies, particularly after the Global Financial Crisis and the COVID-19 pandemic. This study examines the determinants and evolution of FR across 76 countries from 1990-2022 using a newly developed Financial Repression Index (FRI) that captures multiple dimensions of financial control. Employing a fixed-effects framework, the analysis integrates fiscal, macroeconomic, and political factors to explain cross-country variation. Results show that stronger fiscal capacity reduces FR, while inflation increases it across all income groups. In developed economies, FR initially rises with public debt but declines beyond a threshold, an inverted-U pattern reflecting institutional constraints and the credibility of financial markets. In contrast, in developing economies, public debt is negatively associated with FR, suggesting that higher debt triggers external oversight and fiscal discipline, limiting the use of repressive measures. Political coordination and left-oriented governments further influence the degree of repression. Overall, FR is cyclical in advanced economies but structural in developing ones.