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Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization

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Author Info
Graciela Kaminsky
Sergio Schmukler

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Abstract

We examine the short- and long-run effects of financial liberalization on capital markets. To do so, we construct a new comprehensive chronology of financial liberalization in 28 mature and emerging economies since 1973. We also construct an algorithm to identify booms and busts in stock market prices. Our results indicate that financial liberalization is followed by more pronounced boom-bust cycles in the short run. However, financial liberalization leads to more stable markets in the long run. Finally, we analyze the sequencing of liberalization and institutional reforms to understand the contrasting short- and long-run effects of liberalization.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9787.

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Date of creation: Jun 2003
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Handle: RePEc:nbr:nberwo:9787

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Find related papers by JEL classification:
F30 - International Economics - - International Finance - - - General
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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  2. Robert S. Dohner & Ponciano Intal, Jr., 1989. "The Philippine Financial System and the Debt Crisis," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 3: Country Studies - Indonesia, Korea, Philippines, Turkey, pages 481-503 National Bureau of Economic Research, Inc. [Downloadable!]
  3. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  4. Cecchetti, Stephen G & Lam, Pok-sang & Mark, Nelson C, 1990. "Mean Reversion in Equilibrium Asset Prices," American Economic Review, American Economic Association, vol. 80(3), pages 398-418, June. [Downloadable!] (restricted)
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  5. Englund, Peter, 1990. "Financial deregulation in Sweden," European Economic Review, Elsevier, vol. 34(2-3), pages 385-393, May. [Downloadable!] (restricted)
  6. Robert J. Hodrick & Edward Prescott, 1981. "Post-War U.S. Business Cycles: An Empirical Investigation," Discussion Papers 451, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  7. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-38, August. [Downloadable!] (restricted)
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  8. Sebastian Edwards, 1999. "How Effective Are Capital Controls?," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 65-84, Fall. [Downloadable!] (restricted)
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  9. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2004. "Does Financial Liberalization Spur Growth?," Research series 200405-9, National Bank of Belgium. [Downloadable!]
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  10. Allen F. & Morris S. & Postlewaite A., 1993. "Finite Bubbles with Short Sale Constraints and Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 61(2), pages 206-229, December. [Downloadable!] (restricted)
  11. Nada Choueiri & Graciela Laura Kaminsky, 1999. "Has the Nature of Crises Changed? A Quarter Century of Currency Crises in Argentina," IMF Working Papers 99/152, International Monetary Fund.
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  14. Demirguc-Kent, Asli & Detragiache, Enrica, 1998. "Financial liberalization and financial fragility," Policy Research Working Paper Series 1917, The World Bank. [Downloadable!]
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  15. Philippe Martin & Hélène Rey, 2005. "Globalization and Emerging Markets: With or Without Crash?," NBER Working Papers 11550, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Thomas F. Hellmann & Kevin C. Murdock & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March. [Downloadable!] (restricted)
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  18. Barry Eichengreen & Charles Wyplosz, 1993. "The Unstable EMS," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1993-1), pages 51-144. [Downloadable!]
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