External Financial Liberalization Research Articles

Post-Neoliberalism and External Financial Liberalization: Comparing Left-Wing and Right-Wing Populism

AbstractThis article aims to discuss to what extent populist parties with opposite ideological backgrounds have differed in their policies towards inherited external financial liberalization (EFL). Building upon a comparative case study centred on Argentina under Kirchnerism (2003–15) and Hungary under Viktor Orbán (since 2010), I conclude that both experiences led to a partial EFL reversal. However, reflecting their opposite ideological underpinnings, each subtype of populism opted to restrict a different dimension of EFL. Argentina's left-wing populism re-regulated cross-border capital flows, harming financial operators, foreign investors and primary exporters through capital controls and export surrenders. These interventionist capital account regulations were needed to shield expansionary macroeconomic policies that attended the interests of subordinate socioeconomic strata, fuelling the tension with financial markets and domestic economic elites. Conversely, Hungary's right-wing populism focused on the ownership structure of the banking sector, aiming to redistribute assets from foreign to domestic private banks and improve the credit conditions for native capitalists. In this case, even when resorting to macroeconomic heterodoxy, the maintenance of fiscal balance and price stability retained support from both foreign investors and domestic business groups, mitigating tensions derived from financial nationalism.

External Financial Liberalization and Macroeconomic Performance in Emerging Countries: An Empirical Evaluation of the Brazilian Case

ABSTRACTThis article evaluates the effects of external financial liberalization on Brazilian macroeconomic performance from 1995 to 2016. Its main contributions are to assess the influence of the global financial cycle on the level of external financial liberalization and to analyse the short‐ and long‐run macroeconomic effects of such liberalization on the performance of a peripheral economy in the global currency hierarchy. Methodologically, the article employs the Markov‐Switching Vector Autoregressive and Vector Error Correction models. The results show that the global financial cycle directly affects cross‐border financial flows and frames the impact of external financial liberalization on the macroeconomic performance. The article concludes that external financial liberalization has negative macroeconomic effects in the short run and generates a trade‐off between stability and growth in the long run.

A comparative analysis of the financial liberalization in Turkey and Brazil

The objective of this study is to explain the financial liberalization processes in Turkey and Brazil, to analyze the external financial liberalization processes and the financial integration indices and to compare the developments in the financial integration indices of Turkey and Brazil during the period 1980-2013. Our analysis revealed that, on the one hand, Brazil has continued its external liberalization process since the 1990s, but on the other hand, Brazil used two main tools to manage the capital flows, namely, capital controls and liberalization of capital outflows. In contrast, Turkey did not employ these tools following liberalization of the capital account.

Financial gradualism and banking crises in North Africa region: an investigation by a panel logit model

Abstract. In order to overcome the troubles of the crisis in the seventies, North African countries have adopted financial liberalization policies to enhance their economic growth. Moreover, these policies have affected the stability of their banking systems. The purpose of this study is to test the impact of financial liberalization on the probability of appearance of banking crises which covers a sample of four countries of the North Africa region during the period 1970-2003 by using a panel logit model. The empirical analysis of this study suggests that (a) the degree of financial liberalization impact significantly the occurrence of banking crises in the countries of the region, (b) the order of financial liberalization between internal and external financial liberalization is also crucial for the emergence of banking crises. Keywords. Financial liberalization, Banking crises, North African countries, Panel logit model, Order of financial liberalization, Degree of financial liberalization. JEL. F36, G18, F37, G15, C33.

Domestic Politics and External Financial Liberalization in China: The Capacity and Fragility of External Market Pressure

This article explores how the Chinese Communist Party has relied in part on making global financial markets and institutions a source of external pressure to help pass domestic economic and financial reform. We explore two case studies of external financial liberalization: the listing of Chinese state-owned enterprises on foreign stock exchanges and the financial reform aspects of the Shanghai Free Trade Zone. These studies show that external liberalization policies are interlinked with both micro- and macro-level reforms in the domestic economy. We conclude that, after 2005, this strategy of applying external pressure, in fact, did not lead to more comprehensive economic restructuring because the agents of external pressure—in this instance, foreign banks and accounting firms—were themselves party to the reinforcement of state control and ultimately did not (or could not) promote further external liberalization. Domestic agents that supported external liberalization were also quick to abandon it when external pressure conflicted with other domestic policy objectives.

Lending constraints, real estate prices and business cycles in emerging economies

We investigate a small open economy with constraints in both the domestic and the international credit market. The informational opaqueness of the domestic market hinders foreign lenders' activity, so that entrepreneurs face looser borrowing constraints vis-à-vis domestic financiers. However, limited capitalization constrains domestic lenders. Calibrating the model to data from Argentina, we find that the interaction between lending and borrowing constraints is a channel through which real interest rate shocks generate fluctuations in output, real estate prices and consumption. External financial liberalization increases volatility and affects welfare more than domestic liberalization but also mitigates the destabilizing impact of domestic deregulation.

Financial Sector Reforms in East Asia: A Survey of the Theoretical and Empirical Literature (1990-2000s)

The 1990s have been years of activism. The developed countries and most international financial organizations have been urging the developing countries to undertake rapid and comprehensive domestic and external financial liberalization. The crises that followed have now instilled a dose of caution. Liberalization is a risky step, one on which knowledge remains rudimentary. It concerns many different aspects. There is no urgency to undertake liberalization, and when it is taken, it should be approached as a delicate step calling for cautious policy reactions. The main focus of this paper is a survey of the modern theoretical and empirical literature on the topic of a financial sector reform in East Asian region. The paper is organized as following. Section 2 is devoted to financial liberalization as a main part of financial reforms, existing approaches for its implementation and potential positive or/and negative results of it. Section 3 is about financial reforms in East Asia. Section 4 offers some lessons from financial liberalization. Deep doubts, deep wisdom; small doubts, little wisdom. Chinese proverb

Economic Integration between China and the ASEAN‑5

The current level of economic integration between China and ASEAN will largely determine the scale of the impact of China's WTO entry and the China-ASEAN free trade agreement. This article supplements volume-based measures of real and financial integration between China and the ASEAN-5 with those based on the international parity conditions. The results indicate that China's integration with the ASEAN-5 is already relatively advanced with respect to goods and services markets. Financial market integration however remains significantly incomplete. The main implication of this finding is that the impact of future liberalization will be felt most acutely in financial markets. This makes reforms complimentary to greater levels of external financial liberalization, such as regulatory reforms aimed at improving the risk management practices of financial institutions, matters of urgency for both China and the ASEAN-5.

Türkiye Örneğinde Kısa Vadeli Sermaye Hareketleri Makroekonomik Dengeler Üzerinde Reel Kesim Mali Kesim Ayrimiyla Etkileri

The legal framework of the external financial liberalization process in Turkiye has been completed by the code numbered 32. Although external financial liberalization without economic stabilization has led to a reverse currency substitution process, it has also caused emergency of a new structure which is highly sensitive to short term capital movements called hot money. During the financial liberalization process, short term capital injected to the economy by targeting interest-exchange rate arbitrage has been used to finance government debts. This structure caused an instability in the economic indicators and shaped the behavior of the real and the financial sectors that plays highly effective role in determining the macro economic indicators. The main target of this study is to determine the general tendencies of the real and financial sectors? reactions against to the exchange and interest rate policies which lead to short term capital movements, by taking into consideration that the real and financial sectors have contributed to the determination of cash flows in the economy. Within this perspective, it is also aimed to suggest a bundle of policies in obtaining economic stabilization.

Capital Account Liberalization: The Case of Turkey

After experiencing serious macroeconomic imbalances in the 1977-1980 period, fundamental policy changes were introduced in Turkey on January 24, 1980. The problems addressed were typical of a middle income country constrained by its balance of payments: inability to service foreign debt and inability to finance imports required for production, high inflation rates, and all other related macroeconomic imbalances. The reasons for the 1977-1980 crisis and subsequent developments, including post-1980 developments, have already been studied extensively by a number of researchers. We shall, therefore, refer the reader to the relevant literature (e.g. Celasun and Rodrik, 1989; Ekinci, 1990; Uygur, 1991) and concentrate on the narrower topic of external financial liberalization or capital account liberalization and the related topic of exchange rates which has attracted much less attention.