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Banking Crises and Economic FreedomScott L. BaierClemson University - John E. Walker Department of Economics Matthew ClanceClemson University - John E. Walker Department of Economics Gerald P. DwyerUniversity of Carlos III; Clemson University; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) June 30, 2012 Forthcoming in Economic Freedom of the World: 2012 Annual Report, edited by James Gwartney, Robert Lawson and Joshua Hall Abstract: We examine the connection between banking crises and measures of economic freedom disseminated by the Fraser Institute. We find that higher economic freedom – more personal choice, freedom of exchange, and protection of private property – is associated with a lower probability of a banking crisis. This is contrary to conventional wisdom that financial “deregulation” contributes to financial and banking crises. This finding appears in estimates from both a linear probability and a probit model. This finding also is unaffected by inclusion of the growth of real Gross Domestic Product (GDP), deposit insurance, time or country dummy variables or the level of real GDP.
Number of Pages in PDF File: 29 Keywords: banking crisis, financial crisis, economic freedom, property rights, deregulation JEL Classification: G01, G28 working papers seriesDate posted: July 28, 2012Suggested CitationContact Information
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