Political Freedom, External Liberalization and Financial Stability

Christian Weller () and Laura Singleton

International Review of Applied Economics, 2004, vol. 18, issue 1, 1-22

Abstract: The chance of financial crises has grown in emerging economies in recent decades. Increasingly, the interest has shifted away from market-based reforms, such as more transparency, towards potentially stabilizing institutions. Among these institutions are better political freedoms, as they could help to foster stronger and more stable domestic demand growth. Using data from the IMF and Freedom House, we test the effectiveness of political freedoms, in particular of civil liberties and political rights, in reducing the chance of banking and currency crises. Our results show that more civil liberties, which are closely linked to worker rights, lower the chance of banking and currency crises, while political rights have no effect on the chance of financial crises. Also, this effect disappears in more open economies, likely due to increased capital mobility.

Keywords: Banking crisis; currency crisis; labor standards; emerging economies (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1080/0269217032000148636

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