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Political Freedom, External Liberalization and Financial Stability

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  • Christian Weller
  • Laura Singleton

Abstract

The chance of financial crises has grown in emerging economies in recent decades. Increasingly, the interest has shifted away from market-based reforms, such as more transparency, towards potentially stabilizing institutions. Among these institutions are better political freedoms, as they could help to foster stronger and more stable domestic demand growth. Using data from the IMF and Freedom House, we test the effectiveness of political freedoms, in particular of civil liberties and political rights, in reducing the chance of banking and currency crises. Our results show that more civil liberties, which are closely linked to worker rights, lower the chance of banking and currency crises, while political rights have no effect on the chance of financial crises. Also, this effect disappears in more open economies, likely due to increased capital mobility.

Suggested Citation

  • Christian Weller & Laura Singleton, 2004. "Political Freedom, External Liberalization and Financial Stability," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(1), pages 1-22.
    • Handle: RePEc:taf:irapec:v:18:y:2004:i:1:p:1-22
    DOI: 10.1080/0269217032000148636
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    References listed on IDEAS

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    1. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 465-490.
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    3. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    4. Michael W. Klein & Giovanni P. Olivei, 1999. "Capital account liberalization, financial depth, and economic growth," Working Papers 99-6, Federal Reserve Bank of Boston.
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    Cited by:

    1. Christian E. Weller, 2011. "Could international labour rights play a role in US trade?," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 35(1), pages 39-57.
    2. Ferdi Botha, 2016. "The Good African Society Index," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 126(1), pages 57-77, March.
    3. Christian E. Weller & Manita Rao, 2008. "Can Progressive Taxation Contribute to Economic Development?," Working Papers wp176, Political Economy Research Institute, University of Massachusetts at Amherst.
    4. Jac C. Heckelman, 2010. "The Connection between Democratic Freedoms and Growth in Transition Economies," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 56(2), pages 121-146.
    5. Jeffrey A. Edwards & Jennis J. Biser, 2011. "The interactive effect of remittances and civil liberties on investment and consumption," International Journal of Development Issues, Emerald Group Publishing Limited, vol. 10(1), pages 20-33, April.

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