Financial Liberalization and Institutional Development

29 Pages Posted: 11 Oct 2013

See all articles by Markus Alzer

Markus Alzer

RWTH Aachen University

Ramin Dadasov

RWTH Aachen University

Date Written: November 2013

Abstract

This study empirically analyzes the effects of de jure financial openness on institutional quality as captured by indicators on investment risk, corruption level, impartiality of judiciary system, and the effectiveness of bureaucracy. We show that a higher degree of financial openness improves institutional quality mainly by reducing investment risks. We also study the effect of a single liberalization reform. Again, we find evidence for the beneficial impact of financial liberalization with the exception of corruption. We additionally show that the benign consequences of financial opening for the institutional development are even larger if financial liberalization is supported by simultaneous political liberalization, while financial deregulation in former socialist countries tends to worsen institutional quality.

Suggested Citation

Alzer, Markus and Dadasov, Ramin, Financial Liberalization and Institutional Development (November 2013). Economics & Politics, Vol. 25, Issue 3, pp. 424-452, 2013, Available at SSRN: https://ssrn.com/abstract=2338793 or http://dx.doi.org/10.1111/ecpo.12019

Markus Alzer (Contact Author)

RWTH Aachen University ( email )

Templergraben 55
52056 Aachen, 52056
Germany

Ramin Dadasov

RWTH Aachen University ( email )

Templergraben 55
52056 Aachen, 52056
Germany

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