Financial Liberalisation and Political Variables: a response to Abiad and Mody
AbstractWe challenge recent findings by Abiad and Mody (2005) which suggest that financial liberalization has little to do with political variables. This analysis is at odds with some of the established literature, and only with difficulty comes to terms with the considerable cross-national variation in the pace, phasing, and extent of financial reforms over time. Using Abiad and Mody’s own index of financial liberalization, but slightly unbundling and refining their measures of ‘ideological affinity’ and ‘regime type’, we examine what Abiad and Mody call the ‘triggers’ of liberalisation and the dynamics of the subsequent ‘cumulative transformation’. We demonstrate the role of political variables in relation to initial liberalisation episodes, and as variables affecting the cumulative dynamics and sustainability of ongoing financial reform processes, including those which affect the acceptability and costs of liberalization. These factors include (i) shifts to – as opposed to levels in – Left government; (ii) the incidence of Left governments combined with low levels of democracy; (iii) international voter support for free markets; (iv) the extent of social safety nets; (v) the presence of multilateral and bilateral aid programs. Our empirical investigation confirms these factors as statistically significant determinants of financial liberalization, and reveal what Abiad and Mody identify as ‘learning’ to be a highly political process.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by ESRC World Economy and Finance Research Programme, Birkbeck, University of London in its series WEF Working Papers with number 0039.
Date of creation: May 2008
Date of revision:
Other versions of this item:
- Brian Burgoon & Panicos Demetriades & Geoffrey Underhill, 2008. "Financial Liberalisation and Political Variables: a response to Abiad and Mody," Discussion Papers in Economics 08/30, Department of Economics, University of Leicester.
- NEP-ALL-2009-04-25 (All new papers)
- NEP-PKE-2009-04-25 (Post Keynesian Economics)
- NEP-POL-2009-04-25 (Positive Political Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ashoka Mody & Abdul Abiad, 2005.
"Financial Reform: What Shakes It? What Shapes It?,"
IMF Economic Issues
35, International Monetary Fund.
- Philip Arestis & Panicos Demetriades, 1999. "Financial Liberalization: The Experience of Developing Countries," Eastern Economic Journal, Eastern Economic Association, vol. 25(4), pages 441-457, Fall.
- Michael D. Bordo & Barry Eichengreen & Douglas A. Irwin, 1999. "Is Globalization Today Really Different than Globalization a Hunderd Years Ago?," NBER Working Papers 7195, National Bureau of Economic Research, Inc.
- Haggard, Stephan & Webb, Steven B, 1993. "What Do We Know about the Political Economy of Economic Policy Reform?," World Bank Research Observer, World Bank Group, vol. 8(2), pages 143-68, July.
- Burgoon, Brian, 2001. "Globalization and Welfare Compensation: Disentangling the Ties that Bind," International Organization, Cambridge University Press, vol. 55(03), pages 509-551, June.
- Thibault Darcillon, 2011. "Political Partisanship and Financial Reforms in Advanced Countries," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00639840, HAL.
- Susie Lee & Ingmar Schumacher, 2011. "When does financial sector (in)stability induce financial reforms?," Working Papers hal-00637954, HAL.
- Underhill, Geoffrey R D, 2010. "Theory and the Market after the Crisis: the Endogeneity of Financial Governance," CEPR Discussion Papers 8164, C.E.P.R. Discussion Papers.
- Thibault Darcillon, 2011. "Political Partisanship and Financial Reforms in Advanced Countries," Documents de travail du Centre d'Economie de la Sorbonne 11063, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tim Byne).
If references are entirely missing, you can add them using this form.