Financial Globalization, the Democratic Deficit and Recurrent Crises in Emerging Markets: The Turkish Experience in the Aftermath of Capital Account Liberalization

Bogazici University ISS/EC Working Paper No. 01-14

32 Pages Posted: 9 Nov 2001

See all articles by C. Emre Alper

C. Emre Alper

International Monetary Fund (IMF)

Ziya Öniş

Koc University - Department of International Relations

Date Written: July 2001

Abstract

Financial globalization offers both risks and benefits for countries of the semi-periphery orthe so-called "emerging markets". Politics within the national space matters, yet acquires a new meaning, in the age of financial globalization. "Weak democracies" are characterized by limited accountability and transparency of the state and other key political institutions. Such democracies tend to suffer from populist cycles, which result in low capacity to carry out economic reform. Financial globalization, in turn, magnifies populist cycles and renders their consequences more severe. Hence "weak democracies" are confronted with the predominantly negative side of financial globalization which includes over-dependence on short-term capital flows, speculative attacks and recurrent financial crises leading to slow growth and a more regressive income distributional profile. The relevance of these set of propositions are illustrated with reference to the case of Turkey which, indeed, experienced recurrent financial crises in the post-capital account liberalization era with costly consequences for the real economy. Two general conclusions follow. Firstly, there is a need to strengthen democracy in the developing world. Secondly, since this is hard to accomplish over a short space of time serious question marks are raised concerning the desirability of early exposure to financial globalization given the current state of the world.

Keywords: populist cycles, neo-liberal democracy, capital flows, speculative attacks

JEL Classification: O19, H6, F01

Suggested Citation

Alper, C. Emre and Onis, Ziya, Financial Globalization, the Democratic Deficit and Recurrent Crises in Emerging Markets: The Turkish Experience in the Aftermath of Capital Account Liberalization (July 2001). Bogazici University ISS/EC Working Paper No. 01-14, Available at SSRN: https://ssrn.com/abstract=288367 or http://dx.doi.org/10.2139/ssrn.288367

C. Emre Alper (Contact Author)

International Monetary Fund (IMF) ( email )

1700 19th Street, NW
Washington, DC 20431
United States

Ziya Onis

Koc University - Department of International Relations ( email )

Rumelifeneri Yolu
Sariyer 80910, Istanbul
Turkey
+90 212 338 1300 (Phone)
+90 212 338 1651 (Fax)

HOME PAGE: http://home.ku.edu.tr/~zonis/

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