Partisanship and the Path to Financial Openness

Abstract

The effect of traditional left-right economic preferences on countries’ international financial openness is more subtle than existing studies have recognized. The authors investigate the role that partisan politics played in the liberalization of international financial markets within 12 Western European democracies from 1960 to 1986. The authors find that right governments tended to be active liberalizers of the capital account. They were more likely than left governments to enact liberalizations, and liberalizations were especially likely when new right governments entered office. Left governments typically acquiesced to these changes. Although less likely to enact liberalizations, they were no more likely to impose new restrictions. The authors’ findings are consistent with studies that show how financial integration does not undermine welfare states but is still subject to partisan contention.