Abstract
A stable, transparent financial system inspires confidence among investors and supports the overall economic growth. Inflexible regulation tends to slow down economic progress, making countries less attractive to investors. Economies with bank-oriented financial systems tend to be less attractive to investors, so their long-term goal is to demonstrate flexibility through liberalization, attracting new investors and ensuring survival in highly competitive and unforgiving global conditions. Liberalization success is even more essential for developing countries and their efforts to open the borders for capital flows and attract new investments. While financial liberalization affects all sectors of the economy and directly influences growth, it does not guaranty it. The removal of financial restrictions could affect capital distribution, increase volatility, create challenges for banks, etc. To support the liberalization efforts, it is very important to understand the nature of banking business, criticality of transparent and effective regulatory framework, as well as the expectations of potential investors. The main goal of this paper is to discuss the process of financial liberalization in developing countries and motivate the policy makers to consider available lessons when creating their balanced approach to financial (de)regulation processes towards financial development and integration in the global financial landscape. Keywords: financial liberalization, financial regulation, economic development, developing countries. JEL Classification: G18, G21, G28
Highlights
Financial system is a very important element of every economy
The key to success is in determining the appropriate balance between the level of financial liberalization and sufficiently flexible and effective regulatory
The results showed that the effects of financial liberalization are considerably more destabilizing for developing countries that for already developed economies
Summary
Financial system mobilizes savings and allocates loans, stimulating new investments that support economic growth, while a regulatory framework sets the rules and controls activities within the system, providing stability for investors. Inflexible rules and regulations tend to slow down the economic progress, making a developing country less attractive for new investors and closed to financial innovations. Amela Perić, Lecturer, University of Technology, Sydney, Master of Project Management, Australia. The paper is structured across the following sections: succinct theoretical background into financial liberalization, literature review, and analysis of financial liberalization in the light of global financial crisis, followed by summary
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