36 Pages Posted: 15 Feb 2006
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: Suggested Citation
Demirgüç-Kunt, Asli and Detragiache, Enrica, Financial Liberalization and Financial Fragility (June 1998). IMF Working Paper, Vol. , pp. 1-36, 1998. Available at SSRN: https://ssrn.com/abstract=882587