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Liberalization Process and Financial Instability: A Mediterranean Perspective

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  • Wafa, Aidi

    (Université du Sud Toulon Var, UFR Sciences économiques et gestion-LEAD)

Abstract

This paper revisits the debate on the financial stability implications of the liberalization process dynamics. We hold that the financial liberalization effect on exchange pressures changes beyond some threshold degrees. Therefore, we assess the ability of the threshold models to gauge financial liberalization dynamics. We provide empirical evidence from 9 MENA countries over the period of 1980 to 2008. Our results suggest that financial integration exerts nonlinear effects on speculative pressure conditionally to the dynamics of the liberalization process. Moreover, the country which maintains an optimal liberalization dynamic will be later exposed to an “exchange pressures“ effect from its financial liberalization process. Alternatively, evolving within nonoptimal dynamics have led to an increase in a country’s vulnerability to speculative pressures since the early stages of liberalization. From this view, the liberal reform dynamics may constitute an important determinant of a country’s financial stability.

Suggested Citation

  • Wafa, Aidi, 2013. "Liberalization Process and Financial Instability: A Mediterranean Perspective," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 28, pages 59-84.
    • Handle: RePEc:ris:integr:0592
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    Keywords

    Sequencing of Liberalization; Financial Integration; Threshold Models; MENA Region;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G01 - Financial Economics - - General - - - Financial Crises

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