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On the political economy of financial reform

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  • Yongfu Huang

Abstract

This paper studies what induces governments to undertake reforms aimed at financial development. Its starting point is Abiad and Mody (AER 95(1), 2005). Rather than their ordered logit technique, it uses a within groups approach allowing for error dependence across countries and over time. This paper finds that policy change in a country is negatively rather than positively associated with its liberalization level, while the regional liberalization gap does not appear relevant. On the effects of shocks and crises, it suggests that some of the Abiad and Mody (2005) findings are robust, but others are fragile. Furthermore, it claims that the extent of democracy is important for this analysis, and identifes a negative effect of the extent of democracy on policy reform.

Suggested Citation

  • Yongfu Huang, 2006. "On the political economy of financial reform," Bristol Economics Discussion Papers 06/586, School of Economics, University of Bristol, UK.
    • Handle: RePEc:bri:uobdis:06/586
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    File URL: http://www.bristol.ac.uk/efm/media/workingpapers/working_papers/pdffiles/dp06586.pdf
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    References listed on IDEAS

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    1. Chinn, Menzie David & Ito, Hiro, 2005. "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," Santa Cruz Department of Economics, Working Paper Series qt5pv1j341, Department of Economics, UC Santa Cruz.
    2. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
    3. Yongfu Huang, 2005. "Will political liberalisation bring about financial development?," Bristol Economics Discussion Papers 05/578, School of Economics, University of Bristol, UK.
    4. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-1155, December.
    5. Abdul Abiad & Ashoka Mody, 2005. "Financial Reform: What Shakes It? What Shapes It?," American Economic Review, American Economic Association, vol. 95(1), pages 66-88, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Erkan Erdogdu, 2014. "The Political Economy of Electricity Market Liberalization: A Cross-country Approach," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    2. Yongfu Huang, 2005. "What determines financial development?," Bristol Economics Discussion Papers 05/580, School of Economics, University of Bristol, UK.
    3. Yongfu Huang, 2009. "The political economy of financial reform: are Abiad and Mody right?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(7), pages 1207-1213.
    4. Yallwe, Hagos Alem & Buscemi, Antonino, 2011. "Money laundry and financial development," MPRA Paper 32219, University Library of Munich, Germany.

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    More about this item

    Keywords

    Financial liberalization; Financial reform; Political economy; Cross country dependence;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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