Financial Liberalization and Financial Fragility

36 Pages Posted: 15 Feb 2006

See all articles by Asli Demirgüç-Kunt

Asli Demirgüç-Kunt

World Bank

Enrica Detragiache

International Monetary Fund (IMF) - European Department

Multiple version iconThere are 2 versions of this paper

Date Written: June 1998


A study of 53 countries during 1980-95 finds that financial liberalization increases the probability of a banking crisis, but less so where the institutional environment is strong. In particular, respect for the rule of law, a low level of corruption, and good contract enforcement are relevant institutional characteristics. The data also show that, after liberalization, financially repressed countries tend to have improved financial development even if they experience a banking crisis. This is not true for financially restrained countries. This paper`s results support a cautious approach to financial liberalization where institutions are weak, even if macroeconomic stabilization has been achieved.

Keywords: Financial liberalization, banking crises, financial development

JEL Classification: E44, O16

Suggested Citation

Demirgüç-Kunt, Asli and Detragiache, Enrica, Financial Liberalization and Financial Fragility (June 1998). IMF Working Paper No. 98/83, Available at SSRN:

Asli Demirgüç-Kunt (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Enrica Detragiache

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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