Financial liberalization and stability of the financial system in emerging markets: the institutional dimension of financial crises

Allégret, Jean-Pierre; Courbis, Bernard; Dulbecco, Philippe

doi:10.1080/0969229032000048880

Cited by 16 publications

(8 citation statements)

References 32 publications

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“…The empirical research reveals that the effects of capital flow on the volatility of financial stability indicators vary quite substantially across the economies and also across the different types of flows. The heterogeneity of effects across countries is explained by the domestic macroeconomic and financial factors 13 and the role of institutional factors affecting the intermediation of funds 14 , among others. Moreover, it is found that at low levels of development, capital account liberalization can have detrimental effects on the economy, making the emerging markets different from the advanced economies 15 .…”

Section: Empirical Literature Reviewmentioning

confidence: 99%

Capital Account Openness and Financial Stability in Asian Emerging Markets

Verma

2022

JBT

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Post the Global Financial Crisis (GFC) of 2008, there has been an increased focus on financial stability along with the growth objectives. The role of capital flow measures like capital controls and macroprudential regulations has gained prominence in increasing the resilience of the financial system of an economy. In this context, this paper examines the ramification of capital account openness on the financial stability indicators with controls for macroeconomic fundamentals, for the Asian Emerging Markets using the annual data of seven economies from 1980 to 2019. The methodology in the paper employs panel data cointegration techniques along with Augmented Mean Group (AMG) estimation to control for cross-sectional dependence, cross-sectional heterogeneity, and nonstationarity. The results indicate that capital account openness and trade openness increase financial instability in the economy while global risk shows mixed results. The economic development of the country, proxied by the size of the economy has a mitigating effect by reducing volatility in the financial sector.

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Section: Empirical Literature Reviewmentioning

confidence: 99%

Capital Account Openness and Financial Stability in Asian Emerging Markets

Verma

2022

JBT

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“…In liberalization literature, financial liberalization concept refers to four main reforms, namely opening of banking industry, opening of capital account, opening of stock market and deregulation of interest rate (Allegret, 2003;Kaminsky and Schmukler, 2008). Various method of quantifying financial liberalization has evolved over time.…”

Section: Background Of the Studymentioning

confidence: 99%

Exploring the nexus between financial openness and informational efficiency – does the quality of institution matter?

Naghavi

Lau

2014

Applied Economics

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This article examines the empirical link between financial openness and informational efficiency of stock markets in 27 emerging markets. Improving on earlier papers, this study has used World Bank's Worldwide Governance Indicators (WGI) as the proxy of institutional development in dynamic panel data models estimated by generalized method of moments (GMM). Our results show, first, financial liberalization by itself has no impact on enhancing efficiency of stock market. Second, for countries with high level of institutional development, the interaction of trade openness and financial openness become significant. Third, for the same group of countries, interaction effect of financial liberalization and institutional development leads to more efficiency in stock market. Hence, our finding demonstrates the utmost importance of institutional development and its role on liberalization. Our results conclude that institutional development and trade openness are pre-requisites for a country to benefit from financial openness. Our study further provides empirical evidence to theoretical model proposed by Basu and Morey (2005) that governance is the missing link between stock market efficiency and financial liberalization. Our findings suggest that policy makers in developing economies should enhance the quality of their institution in order to optimize the benefits of financial liberalization.

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“…The difficulty lies in the fact that, although the transformation of formal institutions is, in general, both radical and fast, that of informal institutions is of an incremental nature, and is necessarily subject to path dependence constraints. 18 Financial reforms in emerging economies are a striking example of such challenge (Allegret, Dulbecco and Courbis, 2003). In these economies, the degree of asymmetric information is high for two reasons: on the one hand, financial markets are less sophisticated than in developed countries; on the other hand, economic relations are traditionally based on bilateral relationships and then information is not publicized.…”

Section: Structural Reforms and Institutional Order: How To Find A Co...mentioning

confidence: 99%