Financial Liberalization, Government Stability, and Currency Crises – Some Evidence from South Korea and Emerging Market Economies

Journal of Korea Trade Vol. 23, No. 5, August 2019, 129-144

16 Pages Posted: 10 Dec 2019

See all articles by Eric M. P. Chiu

Eric M. P. Chiu

National Chung Hsing University - Graduate Institute of National Policy and Public Affairs

Date Written: August 14, 2019

Abstract

Purpose – Recent empirical studies have reached mixed results on the effects of financial liberalization and currency crises. We argue that this relationship is likely to depend both on whether controls are primarily on the degrees of financial liberalization and on the stability of the government. Using the disaggregated data on financial liberalization recently developed by Abiad et al (2010) for a sample of 30 emerging countries over the period 1995-2015, we attempt to investigate the political economy determinants of currency crises.

Design/methodology – Our empirical model considers the relationship between financial liberalization and currency crises for emerging market economies. This study employs the existing theoretical framework to identify the disaggregate level for financial liberalization across countries. Using a multivariate logit model, this study attempts to estimate the interrelationship among financial liberalization, government stability and currency crises complemented by a case study of South Korea.

Findings – Our main findings can be summarized as follows: we find strong support for the proposition that more liberalized financial institutions are positively associated with the probability of currency crises especially under less stable governments, but reduce the risks of currency crises especially for more stable governments. We also examine the role of financial systems with the case of South Korea after Asian financial crises and the results are further supported and consistent with the empirical findings.

Originality/value – Existing studies focus on the economic factors across countries. This paper instead attempts to evaluate the effects of financial liberalization and currency crises by incorporating political considerations with newly developed dataset on financial liberalization, which are essential to the understanding of the causes of currency crises.

Keywords: Currency Crises, Financial Liberalization, Government Stability, South Korea

JEL Classification: F38, F41, G01

Suggested Citation

Chiu, Eric M. P., Financial Liberalization, Government Stability, and Currency Crises – Some Evidence from South Korea and Emerging Market Economies (August 14, 2019). Journal of Korea Trade Vol. 23, No. 5, August 2019, 129-144 . Available at SSRN: https://ssrn.com/abstract=3492159

Eric M. P. Chiu (Contact Author)

National Chung Hsing University - Graduate Institute of National Policy and Public Affairs ( email )

Taiwan

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
4
Abstract Views
41
PlumX Metrics