The McKinnon-Shaw framework directs attention to the return on financial liberalisation as being an increase in the rate of economic growth. The 1990s experience indicates that there is a risk factor associated with financial liberalisation (i.e. financial crisis) might surpass the return of economic growth. Peculiar to the 1990s financial crises has been portfolio capital flows which played a role in most of the affected LDC’s. Both the return and the risk of financial liberalisation have been investigated in this thesis, in the context of the 1990s experience. Financial liberalisation programmes have lead to portfolio shifts, shifts in both the return and risk factors of financial investment, in the short-term. However, the issue is more crucial in a long-term basis. Where financial assets are claims on the real sector, the question is whether financial liberalisation leads in the long-term to portfolio shifts.