Sequencing of reforms, financial globalization, and macroeconomic vulnerability

Sebastian Edwards

Journal of the Japanese and International Economies, 2009, vol. 23, issue 2, 131-148

Abstract: I use a large cross country data set and panel probit analysis to investigate the way in which the interaction between trade and financial openness affect the probability of external crises. This analysis is related to debate on the adequate sequencing of reform. I also investigate the role played by current account and fiscal imbalances, contagion, international reserves holdings, and the exchange rate regime as possible determinants of external crises. The results indicate that relaxing capital controls increases the likelihood of a country experiencing a sudden stop. Moreover, the results suggest that "financial liberalization first" strategies increase the degree of vulnerability to external crises. This is particularly the case if this strategy is pursued with pegged exchange rates and if it results in large current account imbalances. J. Japanese Int. Economies 23 (2) (2009) 131-148.

Keywords: Financial; openness; Capital; mobility; Contagion; External; imbalances; Current; account; deficits; Sudden; stops; Crises; Sequencing; of; reform (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jjieco:v:23:y:2009:i:2:p:131-148

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