On the Political Economy of Banking and Financial Regulatory Reform in Emerging Markets
CRSP Working Paper No. 472
32 Pages Posted: 21 Dec 1998
Date Written: April 1998
This paper synthesizes literature on the economics of regulation and positive political economy to provide a framework for understanding why certain types of banking and financial regulations arise in particular circumstance and what causes them to change. The analysis focuses on competition among rival interest groups. Technological and economic shocks alter the value of regulation to existing interest groups and their lobbying power, and these shocks recently have been tending to tip the balance in favor of the deregulation. The structure of the public decision-making process plays a role by affecting the willingness of different groups to organize and the influence of those groups as lobbyists. The fiscal demands of the government play an important role. Academics also may play a role by generating ideas and arguments that can increase or decrease the effectiveness of an interest group's lobbying effort. The positive analysis of how regulatory change evolves may ultimately provide normative guidance for those who wish to implement lasting policy reforms in both emerging and developed economies.
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