If You’re Going Through Hell, Keep Going: Non-linear Effects of Financial Liberalization in Transition Economies
Did increasing the level and pace of financial liberalization during transition expose countries to crises? And if a crisis did strike, did liberalization do more harm or good?
Using a database of 28 transition economies over 22 years, Christopher A. Hartwell examines these questions across a host of economic outcomes, including savings and the size of the private sector. The results provide evidence that, while liberalization may initially increase the probability of a crisis, the prospect of a crisis drops dramatically at higher levels of financial openness. Moreover, the benefits of liberalization across several metrics outweigh the risks of these intermediate stages.
The paper has been published by Emerging Markets Finance and Trade and can be accessed here.