Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 567: Financial Liberalization, Banking Crises and Growth: Assessing the Links

Alessandra Bonfiglioli and Caterina Mendicino ()
Additional contact information
Alessandra Bonfiglioli: IIES, Stockholm University., Postal: IIES - Stockholm University, S 106 91 Stockholm, Sweden,
Caterina Mendicino: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden

Abstract:

This paper studies the effects of financial liberalization and banking crises on growth. It shows that financial liberalization spurs on average economic growth. Banking crises are harmful for growth, but to a lesser extent in countries with open financial systems and good institutions.

The positive effect of financial liberalization is robust to different definitions. While the removal of capital account restrictions is effective by increasing financial depth, equity market liberalization affects growth directly.

The empirical analysis is performed through GMM dynamic panel data estimations on a panel of 90 countries observed

in the period 1975-1999.

Keywords: Capital account liberalization; equity market liberalization; financial development; institutions; dynamic panel data

JEL-codes: C23; F02; G15; O11

28 pages, October 21, 2004

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