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A Few Observations on Financial Liberalization and Financial Instability

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  • Christian E. Weller

    (Center for European Integration Studies, University of Bonn, Walter-Flex-Str. 3, 53113 Bonn, Germany, weller@united.econ.uni-bonn.de)

Abstract

Recent studies have conjectured that there may be a link between financial liberalization (FL) and financial instability in emerging economies. Most of these studies, however, do not investigate whether emerging economies are, in fact, becoming structurally more vulnerable to currency and banking crises. In this paper, I argue that emerging economies are becoming more susceptible to both currency and banking crises after FL. Using data for 27 emerging economies-excluding transition economies—from 1973 to the present, a univariate analysis indicates that the likelihood of currency crises may increase with stronger reactions to financial variables than to real or external trade variables. Similarly, for banking crises, interest rate, exchange rate, maturity, and default may increase, while simultaneously the support structure of the government seems to decline.

Suggested Citation

  • Christian E. Weller, 1999. "A Few Observations on Financial Liberalization and Financial Instability," Review of Radical Political Economics, Union for Radical Political Economics, vol. 31(3), pages 66-77, September.
    • Handle: RePEc:sae:reorpe:v:31:y:1999:i:3:p:66-77
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    Cited by:

    1. Babar Hussain & Muhammad Naveed Tahir & Bahawal Khan, 2022. "Impact of Financial Development, Financial Liberalization and Economic Growth on Financial Instability: Evidence from Panel Data," Journal of Economic Impact, Science Impact Publishers, vol. 4(2), pages 142-151.

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