Political Freedom, External Liberalization and Financial Stability

Abstract

The chance of financial crises has grown in emerging economies in recent decades. Increasingly, the interest has shifted away from market-based reforms, such as more transparency, towards potentially stabilizing institutions. Among these institutions are better political freedoms, as they could help to foster stronger and more stable domestic demand growth. Using data from the IMF and Freedom House, we test the effectiveness of political freedoms, in particular of civil liberties and political rights, in reducing the chance of banking and currency crises. Our results show that more civil liberties, which are closely linked to worker rights, lower the chance of banking and currency crises, while political rights have no effect on the chance of financial crises. Also, this effect disappears in more open economies, likely due to increased capital mobility.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 21 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.