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External Liabilities, Domestic Institutions and Banking Crises in Developing Economies

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  • Boukef Jlassi, Nabila
  • Hamdi, Helmi
  • Joyce, Joseph

Abstract

We investigate the impact of foreign equity and debt on the occurrence of banking crises in 61 lower-income and middle-income economies during the 1984-2010 period. We also focus on the effects of domestic institutions on banking crises and whether they mitigate or exacerbate the impact of the external liabilities. We find that FDI liabilities lower the probability of a crisis, while debt liabilities increase their incidence. However, institutions that lower financial or political risk partially offset the impact of debt liabilities, as does government stability. A decrease in investment risk directly reduces the incidence of banking crises.

Suggested Citation

  • Boukef Jlassi, Nabila & Hamdi, Helmi & Joyce, Joseph, 2016. "External Liabilities, Domestic Institutions and Banking Crises in Developing Economies," MPRA Paper 81120, University Library of Munich, Germany, revised 06 Apr 2017.
    • Handle: RePEc:pra:mprapa:81120
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    Cited by:

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    3. Rachdi, Houssem & Hakimi, Abdelaziz & Hamdi, Helmi, 2018. "Liberalization, crisis and growth in MENA region: Do institutions matter?," Journal of Policy Modeling, Elsevier, vol. 40(4), pages 810-826.
    4. Levieuge, Grégory & Lucotte, Yannick & Pradines-Jobet, Florian, 2021. "The cost of banking crises: Does the policy framework matter?," Journal of International Money and Finance, Elsevier, vol. 110(C).
    5. Donia Aloui & Brahim Gaies & Rafla Hchaichi, 2023. "Exploring environmental degradation spillovers in Sub-Saharan Africa: the energy–financial instability nexus," Economic Change and Restructuring, Springer, vol. 56(3), pages 1699-1724, June.
    6. Joseph P. Joyce, 2018. "External balance sheets as countercyclical crisis buffers," International Economics and Economic Policy, Springer, vol. 15(2), pages 305-329, April.
    7. Brahim Gaies & Mahmoud‐Sami Nabi, 2021. "Banking crises and economic growth in developing countries: Why privileging foreign direct investment over external debt?," Bulletin of Economic Research, Wiley Blackwell, vol. 73(4), pages 736-761, October.
    8. Owusu-Agyei, Samuel & Okafor, Godwin & Chijoke-Mgbame, Aruoriwo Marian & Ohalehi, Paschal & Hasan, Fakhrul, 2020. "Internet adoption and financial development in sub-Saharan Africa," Technological Forecasting and Social Change, Elsevier, vol. 161(C).

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    More about this item

    Keywords

    banking crises; FDI; portfolio; debt; institutions;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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