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When does financial sector (in)stability induce financial reforms?

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Author Info

  • Susie Lee

    (Lehrstuhl fur Kommunal - und Umweltokonomie - Universität Trier)

  • Ingmar Schumacher

    (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, Banque Centrale du Luxembourg - [-])

Abstract

The article studies whether financial sector (in)stability had an effect on reforms in the financial sector in a large cross-country panel from 1990 to 2005. We forward the theory that countries are more likely to liberalize their financial sectors in times of financial stability. We argue that politicians are less likely to undertake financial reforms if they face a strong lobby in the financial sector which is able to block reforms that are not in its interest. Our empirical results suggest that financial instability leads to regulations, while financial stability is found to induce liberalizations. We also find that weaker financial lobbies are unable to block financial reforms while strong lobbies can effectively stop reforms.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number hal-00637954.

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Date of creation: 03 Nov 2011
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Handle: RePEc:hal:wpaper:hal-00637954

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Related research

Keywords: Financial reforms; interest group theory; financial stability; financial crises;

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Cited by:
  1. Benteng Zou & Ingmar Schumacher, 2013. "Threshold Preferences and the Environment," CREA Discussion Paper Series 13-14, Center for Research in Economic Analysis, University of Luxembourg.
  2. repec:ipg:wpaper:15 is not listed on IDEAS

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