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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. Papaioannou, Elias & Siourounis, Gregorios, 2008. "Democratization and Growth," CEPR Discussion Papers 6987, C.E.P.R. Discussion Papers.
  2. Loayza, Norman & Ranciere, Romain, 2004. "Financial development, financial fragility, and growth," Policy Research Working Paper Series 3431, The World Bank.
  3. 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.
  4. Nauro F. Campos & Abrizio Coricelli, 2002. "Growth in Transition: What We Know, What We Don't, and What We Should," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 793-836, September.
  5. Campos, Nauro F & Horváth, Roman, 2006. "Reform Redux: Measurement, Determinants and Reversals," CEPR Discussion Papers 5673, C.E.P.R. Discussion Papers.
  6. Daron Acemoglu & Simon Johnson & James Robinson & Pierre Yared, 2005. "Income and Democracy," NBER Working Papers 11205, National Bureau of Economic Research, Inc.
  7. Francesco Giavazzi & Guido Tabellini, 2004. "Economic and Political Liberalizations," NBER Working Papers 10657, National Bureau of Economic Research, Inc.
  8. Daron Acemoglu & James A. Robinson, 2006. "Persistence of Power, Elites and Institutions," NBER Working Papers 12108, National Bureau of Economic Research, Inc.
  9. Giovannini, Alberto & de Melo, Martha, 1993. "Government Revenue from Financial Repression," American Economic Review, American Economic Association, vol. 83(4), pages 953-63, September.
  10. Graciela Kaminsky & Sergio Schmukler, 2003. "Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization," NBER Working Papers 9787, National Bureau of Economic Research, Inc.
  11. Dewatripont, Mathias & Roland, Gérard, 1993. "The Design of Reform Packages Under Uncertainty," CEPR Discussion Papers 860, C.E.P.R. Discussion Papers.
  12. Ashoka Mody & Abdul Abiad, 2005. "Financial Reform; What Shakes It? What Shapes It?," IMF Economic Issues 35, International Monetary Fund.
  13. Sayantan Ghosal & Eugenio Proto, 2008. "Democracy, Collective Action and Intra-Elite Conflict," CEDI Discussion Paper Series 08-09, Centre for Economic Development and Institutions(CEDI), Brunel University.
  14. repec:dau:papers:123456789/7960 is not listed on IDEAS
  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, 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.
  17. Kose, Ayhan & Prasad, Eswar & Rogoff, Kenneth & Wei, Shang-Jin, 2009. "Financial Globalization and Economic Policies," CEPR Discussion Papers 7117, C.E.P.R. Discussion Papers.
  18. Jorge Braga de Macedo & Joaquim Oliveira Martins, 2006. "Growth, Reform Indicators and Policy Complementaries," NBER Working Papers 12544, National Bureau of Economic Research, Inc.
  19. Ross Levine, 2004. "Finance and Growth: Theory and Evidence," NBER Working Papers 10766, National Bureau of Economic Research, Inc.
  20. Stephen L. Parente & Edward C. Prescott, 2002. "Barriers to Riches," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661306.
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