City Research Online

Financial crises and liberalization: Progress or reversals?

Saka, O. ORCID: 0000-0002-1822-1309, Campos, N., De Grauwe, P. , Ji, Y. & Martelli, A. (2020). Financial crises and liberalization: Progress or reversals? In: Economic Growth and Structural Reforms in Europe. (pp. 177-213). Cambridge University Press. doi: 10.1017/9781108782517.009


Financial crisis could play a key role in changing the policy equilibrium concerning financial markets and institutions. Using a recent comprehensive dataset on financial liberalization across 94 countries for the period between 1973 and 2015, we formally test the validity of this prediction for the member states of the European Union as well as a global sample. We contribute by (a) using a new up-to-date dataset of reforms and crises and (b) subjecting it to a combination of difference-in-differences and local projection estimations. In the global sample, our findings on the causal relationship between crises and liberal reforms consistently point out a negative direction between the two, suggesting that governments react to crises by intervening in financial markets. However, in a dynamic setting with impulse-responses, we also illustrate that such interventions are only temporary and liberalization process restarts after a financial crisis. In the EU sample, however, we do not find sufficient evidence to support either of these observations.

Publication Type: Book Section
Additional Information: This material has been published in Economic Growth and Structural Reforms in Europe, edited by Nauro F. Campos, Paul De Grauwe, Yuemei Ji. DOI: This version is free to view and download for private research and study only. Not for re-distribution or re-use. © CUP.
Publisher Keywords: financial reforms, financial crises, reform reversals, twin crises, local projections
Subjects: H Social Sciences > HG Finance
J Political Science > JF Political institutions (General)
Departments: School of Policy & Global Affairs > Economics
[thumbnail of Saka et al. (2018) - FC&R_final_27Oct.pdf]
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