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Financial Liberalization in the Developing Countries and Its Effect on Banking Systems and Banking Crises

Author

Listed:
  • Mehmet Okan Ta?ar

    (Selcuk University, Faculty of Economics and Administrative Sciences)

  • Sava? Çevik

    (Selcuk University, Faculty of Economics and Administrative Sciences)

Abstract

Financial deregulations or financial liberalization can be referred to a variety of changes in the law which allows financial institutions more freedom in how they compete. Whether deregulations are beneficial or harmful to the economy has been widely debated.This paper investigates the effect of financial globalization on the incidence of systemic bank crises in developing countries by using measures of the financial openness. The liberalization trend in the global scale starting with the Washington Consensus has been influential on financial markets and the banking sector. Financial liberalization and uncontrolled expansion of international capital movements has led to the diversification and acceleration of the global financial crisis. Thus, ?financial deregulations? which offered as a solution to the debt crisis experienced in the 1980s has led to a new financial crisis in 2010's. An increase in foreign debt liabilities contributes to an increase in the incidence of crises, but foreign direct investment and portfolio equity liabilities have also the opposite effect. This paper discusses how financial liberalization could contribute to financal crises and macroeconomic instabilitiy in the developing countries. For this aim, we analyze empirically a database from developing countries to test the effect of financial openness on macroeconomic indicators. As the dependent variable, we use a variable which take the value of one in the year of a banking crisis. To estimate the indicators of financial crises, main explanatory variables which are employed in the specifications are financial openness, current account balances, exchange rate regime, inflation, trade openness and percent change in GDP. In the introduction to this paper examines the process of liberalization. Second part; banking system and its features are analyzed during the Global financial Crisis. In the third section the historical development of financial crisis and measure of financial liberalization are discussed.In the final part of the paper of financial liberalization and financial crisis the relationship between macro-economic indicators are examined.

Suggested Citation

  • Mehmet Okan Ta?ar & Sava? Çevik, 2014. "Financial Liberalization in the Developing Countries and Its Effect on Banking Systems and Banking Crises," Proceedings of International Academic Conferences 0702096, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iacpro:0702096
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    References listed on IDEAS

    as
    1. Raghuram G. Rajan, 2013. "The Credit Crisis and Cycle-Proof Regulation," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 461-467.
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    3. Rajmund Mirdala, 2006. "Macroeconomic aspects of financial liberalization," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 53(4), pages 439-456, December.
    4. Xavier Vives, 2001. "Restructuring Financial Regulation in the European Monetary Union," Journal of Financial Services Research, Springer;Western Finance Association, vol. 19(1), pages 57-82, February.
    5. Rui P. Esteves, 2011. "The Political Economy of Global Financial Liberalisation in Historical Perspective," Oxford University Economic and Social History Series _089, Economics Group, Nuffield College, University of Oxford.
    6. Esteban Perez-Caldentey & Matias Vernengo, 2012. "The Euro Imbalances and Financial Deregulation: A Post-Keynesian Interpretation of the European Debt Crisis," Economics Working Paper Archive wp_702, Levy Economics Institute.
    7. Rui Esteves, 2011. "The Political Economy of Global Financial Liberalisation in Historical Perspective," Oxford Economic and Social History Working Papers _089, University of Oxford, Department of Economics.
    8. Rajmund Mirdala, 2006. "Macroeconomic aspects of financial liberalization," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 53(4), pages 439-456.
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    More about this item

    Keywords

    Financial deregulations; financial openness; banking crisis; global financial crisis;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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