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Page 3 of 11

European Journal of Business &

Social Sciences

Available at https://ejbss.org/

ISSN: 2235-767X

Volume 07 Issue 04

April 2019

Available online: https://ejbss.org/ P a g e | 94

Ho1: To a large extent SMEs do not encounter problems in the procurement of loans from

commercial banks.

Ho2: To high degree, commercial banks loans and advances have not contributed

significantly to the development of small and medium enterprises in Rajasthan state.

Ho3: To a high-level SMEs has not contributed to the growth and development of the

Rajasthan state.

4. Literature Review

Debates on the effect of financial repression were based on the pioneer work of Mickinnon

(1973) and Shaw (1973) amongst others and the thrust of the argument of these studies

emphasizes that the financial sector would perform efficiently and contribute maximally to

economic development if the authorities refrain from controlling its operations, thereby

arguing for a liberal or liassez-faire financial repression through a decrease in the real rate of

interest which is fixed at a point which much lower than its equilibrium level. Hence, the

removal of financial repression through an increase in the real rate of interest will provide

greater incentive to save and invest leading to a more efficient allocation of resources.

Subsequently, various empirical studies have been conducted to examine the validity of the

financial repression hypothesis and the operation of financial liberalization as a better option

to aid availability of finance to SMEs.

Tybout (1996) and Reichel (1991) among others investigated the relationship between

savings and interest rate in different countries using different approaches. They aimed at

providing evidence on the validity of the proposition that financial liberalization will

establish positive real rate of interest, and raise the level of saving. They all found fairly

consistent support for a positive effect of real interest on savings.

Thornton (1991) investigated the relationship between real interest and the level of

investment as positive. Fry (1980) observed a positive and significant relationship between

interest rate, domestic credit and investment while on the other hand Thornton (1991) found a

positive and significant relationship between the demand for money and investment or

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