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Financial Reform: What Shakes It? What Shapes It?

  • Abdul Abiad
  • Ashoka Mody

What accounts for the worldwide advance of financial reforms in the last quarter century? Using a new index of financial liberalization, we find that influential events shook the policy status quo. Balance-of-payments crises spurred reforms, but banking crises set liberalization back. Falling global interest rates strengthened reformers, while new governments went both ways. The overall trend toward liberalization, however, reflected pressures and incentives generated by initial reforms that raised the likelihood of additional reforms, stimulated further by the need to catch up with regional reform leaders. In contrast, ideology and country structure had limited influence.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/0002828053828699
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File URL: http://www.aeaweb.org/aer/data/mar05_data_abiad.zip
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 95 (2005)
Issue (Month): 1 (March)
Pages: 66-88

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Handle: RePEc:aea:aecrev:v:95:y:2005:i:1:p:66-88
Note: DOI: 10.1257/0002828053828699
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  1. 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.
  2. Edison, Hali J. & Warnock, Francis E., 2003. "A simple measure of the intensity of capital controls," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 81-103, February.
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  10. Roubini, Nouriel & Alesina, Alberto, 1992. "Political Cycles in OECD Economies," Scholarly Articles 4553025, Harvard University Department of Economics.
  11. Oriana Bandiera & Gerard Caprio Jr. & Patrick Honohan & Fabio Schiantarelli, 1998. "Does Financial Reform Raise or Reduce Savings?," Boston College Working Papers in Economics 413, Boston College Department of Economics.
  12. Aaron Tornell, 1998. "Reform from Within," NBER Working Papers 6497, National Bureau of Economic Research, Inc.
  13. Alesina, Alberto F & Roubini, Nouriel, 1990. "Political Cycles in OECD Economies," CEPR Discussion Papers 470, C.E.P.R. Discussion Papers.
  14. Allan Drazen & William Easterly, 2001. "Do Crises Induce Reform? Simple Empirical Tests of Conventional Wisdom," Economics and Politics, Wiley Blackwell, vol. 13(2), pages 129-157, 07.
  15. Harberger, Arnold C, 1993. "Secrets of Success: A Handful of Heroes," American Economic Review, American Economic Association, vol. 83(2), pages 343-50, May.
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  17. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-55, December.
  18. Geert Bekaert & Campbell R. Harvey, 1997. "Foreign Speculators and Emerging Equity Markets," William Davidson Institute Working Papers Series 79, William Davidson Institute at the University of Michigan.
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