Financial crises and liberalization: progress or reversals?

Orkun Saka, Nauro Campos, Paul De Grauwe, Yuemei Ji () and Angelo Martelli

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Financial crisis can trigger policy reversals, i.e. they can lead to a process of reregulation of financial markets. Using a recent comprehensive dataset on financial liberalization across 94 countries for the period between 1973 and 2015, we formally test the validity of this prediction for the member states of the European Union as well as for a global sample. We contribute by (a) using a new up-to-date dataset of reforms and crises and (b) subjecting it to a combination of difference-in-differences and local projection estimations. In the global sample, our findings consistently confirm that crises lead to a reversal of liberal reforms, suggesting that governments react to crises by re-regulating financial markets. However, in a dynamic setting with impulse-responses, we also find that these new regulations are only temporary and a liberalization process restarts a few years after a financial crisis. One decade later, financial markets have returned to their pre-crisis level of liberalization. In the EU sample, however, we do not find sufficient evidence to support these observations.

JEL-codes: G00 G28 P11 P16 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2019-07-18
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http://eprints.lse.ac.uk/118931/ Open access version. (application/pdf)

Related works:
Working Paper: Financial Crises and Liberalisation: Progress or Reversals? (2019)
Working Paper: Financial Crises and Liberalization: Progress or Reversals? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:118931

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