Banking Crises and Economic Freedom

Forthcoming in Economic Freedom of the World: 2012 Annual Report, edited by James Gwartney, Robert Lawson and Joshua Hall

29 Pages Posted: 28 Jul 2012

See all articles by Scott L. Baier

Scott L. Baier

Clemson University - John E. Walker Department of Economics

Matthew Clance

University of Pretoria; Clemson University - John E. Walker Department of Economics

Gerald P. Dwyer

Clemson University; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Date Written: June 30, 2012

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.

Keywords: banking crisis, financial crisis, economic freedom, property rights, deregulation

JEL Classification: G01, G28

Suggested Citation

Baier, Scott Leonard and Clance, Matthew and Dwyer, Gerald P., Banking Crises and Economic Freedom (June 30, 2012). Forthcoming in Economic Freedom of the World: 2012 Annual Report, edited by James Gwartney, Robert Lawson and Joshua Hall, Available at SSRN: https://ssrn.com/abstract=2117883 or http://dx.doi.org/10.2139/ssrn.2117883

Scott Leonard Baier

Clemson University - John E. Walker Department of Economics ( email )

Clemson, SC 29634
United States
864-656-4534 (Phone)

Matthew Clance

University of Pretoria ( email )

Physical Address Economic and Management Sciences
Pretoria, Gauteng 0002
South Africa

Clemson University - John E. Walker Department of Economics ( email )

Clemson, SC 29634
United States

Gerald P. Dwyer (Contact Author)

Clemson University ( email )

Department of Economics
Clemson University
Clemson, SC 29634
United States

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

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