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Financial Liberalization and Democracy: The Role of Reform Reversals

  • Campos, Nauro F

    ()

    (Brunel University)

  • Coricelli, Fabrizio

    ()

    (Paris School of Economics)

The relationship between economic and political liberalization has received a great deal of attention lately, yet the possibility of a nonlinear relationship and the role of reversals remain largely neglected. Focusing on democratization and financial reform, this paper offers evidence for a U-shaped relationship across countries, over time as well as in a panel setting using a wide range of estimators for various reform measures. We link this non-linear relationship to the notion of partial or captured democracy. We provide as well econometric support showing that even when de facto is modelled as a function of de jure financial liberalization, this non-linearity obtains.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4338.

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Length: 44 pages
Date of creation: Aug 2009
Date of revision:
Publication status: published as 'Financial liberalization and reversals: political and economic determinants' in: Economic Policy, 2012, 27 (71), 483-513
Handle: RePEc:iza:izadps:dp4338
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  1. Ghosal, Sayantan & Proto, Eugenio, 2008. "Democracy, Collective Action and Intra-elite Conflict," The Warwick Economics Research Paper Series (TWERPS) 844, University of Warwick, Department of Economics.
  2. Campos, Nauro F & Horváth, Roman, 2006. "Reform Redux: Measurement, Determinants and Reversals," IZA Discussion Papers 2093, Institute for the Study of Labor (IZA).
  3. Loayza, Norman & Ranciere, Romain, 2004. "Financial development, financial fragility, and growth," Policy Research Working Paper Series 3431, The World Bank.
  4. Mathias Dewatripont & Gérard Roland, 1995. "The design of reform packages under uncertainty," ULB Institutional Repository 2013/9607, ULB -- Universite Libre de Bruxelles.
  5. Macedo, Jorge Braga de & Martins, Joaquim Oliveira, 2006. "Growth, Reform indicators and Policy complementarities," FEUNL Working Paper Series wp484, Universidade Nova de Lisboa, Faculdade de Economia.
  6. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934 Elsevier.
  7. Ashoka Mody & Abdul Abiad, 2003. "Financial Reform; What Shakes it? What Shapes it?," IMF Working Papers 03/70, International Monetary Fund.
  8. Kose, Ayhan & Prasad, Eswar & Rogoff, Kenneth & Wei, Shang-Jin, 2004. "Financial Globalization, Growth and Volatility in Developing Countries," CEPR Discussion Papers 4772, C.E.P.R. Discussion Papers.
  9. Sergio L. Schmukler & Graciela Laura Kaminsky, 2003. "Short-Run Pain, Long-Run Gain; The Effects of Financial Liberalization," IMF Working Papers 03/34, International Monetary Fund.
  10. Francesco Giavazzi & Guido Tabellini, 2004. "Economic and Political Liberalizations," Levine's Bibliography 122247000000000724, UCLA Department of Economics.
  11. Nauro F. Campos & Fabrizio Coricelli, 2002. "Growth in Transition: What We Know, What We Don't, and What We Should," William Davidson Institute Working Papers Series 470, William Davidson Institute at the University of Michigan.
  12. Giovannini, Alberto & de Melo, Martha, 1993. "Government Revenue from Financial Repression," American Economic Review, American Economic Association, vol. 83(4), pages 953-63, September.
  13. Elias Papaioannou & Gregorios Siourounis, 2008. "Democratization and Growth," Working Papers 00027, University of Peloponnese, Department of Economics.
  14. Raghuram G. Rajan, 2009. "Rent Preservation and the Persistence of Underdevelopment," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 178-218, January.
  15. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
  16. Kose, M. Ayhan & Prasad, Eswar & Rogoff, Kenneth & Wei, Shang-Jin, 2010. "Financial Globalization and Economic Policies," Handbook of Development Economics, Elsevier.
  17. Acemoglu, Daron & Robinson, James A, 2006. "Persistence of Power, Elites and Institutions," CEPR Discussion Papers 5603, C.E.P.R. Discussion Papers.
  18. Stephen L. Parente & Edward C. Prescott, 2002. "Barriers to Riches," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661306, June.
  19. Daron Acemoglu & Simon Johnson & James A. Robinson & Pierre Yared, 2008. "Income and Democracy," American Economic Review, American Economic Association, vol. 98(3), pages 808-42, June.
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