Decomposing the Effects of Financial Liberalization: Crises vs. Growth
23 Pages Posted: 5 Jan 2007 Last revised: 30 Jun 2010
Date Written: December 2006
We present a new empirical decomposition of the effects of financial liberalization on economic growth and on the incidence of crises. Our empirical estimates show that the direct effect of financial liberalization on growth by far outweighs the indirect effect via a higher propensity to crisis. We also discuss several models of financial liberalization and growth whose predictions are consistent with our empirical findings.
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