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This article studies the effects of financial liberalisation on governability. The dependent variables measure governability in terms of control of corruption, government effectiveness, political stability, rule of law, regulatory quality and free speech for 125 countries from 1996 to 2019. As a variable measuring financial liberalisation, I use the Chinn-Ito index and Fernandez index as capital control measure. I use fixed-effects panel data, quantile regression, system GMM and event study to estimate these effects. The results I find show that the financial liberalisation has strong effects on those governability variables, especially low-income countries tend to have a higher sensitivity to changes in capital controls on governability and social stability, as well as countries in the 0.4–0.6 quantiles of the governability. Finally, I find that these effects take at least one year to become persistent over time. These findings imply that, in times of political turbulence and instability, governments may pursue liberalising policies that increase the dynamism of the economy to alleviate the climate of ungovernability. JEL Codes: F38, D72, P16 [ABSTRACT FROM AUTHOR]

This study investigates the effects of monetary policy credibility and the open economy trilemma on monetary policy efficiency in developing countries. Based on a sample of 28 developing countries, the findings reveal that monetary policy credibility increases monetary policy efficiency. The results also show that central banks in developing countries have more efficient monetary policies when they choose a policy arrangement contrary to the 'middle‐ground convergence'; but, to the extent they accumulate international reserves, it allows them to move to a middle‐ground strategy. Regarding the trilemma, the estimates suggest when monetary policy is independent, monetary policy is more efficient. Furthermore, when financial openness and exchange rate stability are deepened, central banks become less efficient in conducting monetary policy. However, when countries hold higher levels of international reserves, the positive effect of monetary autonomy on monetary policy efficiency decreases and the negative effect of financial liberalisation on monetary policy efficiency decreases. [ABSTRACT FROM AUTHOR]

This paper examines the individual and interactive impacts of trade and financial liberalization on Nigeria’s current account balance between 1986 and 2019. An autoregressive distributed lag technique is used to investigate the short- and long-run effects of the de facto measure of trade openness and the de jure measure of financial openness by Chinn-Ito on the current account. The finding suggests that financial liberalization, in particular, has an insignificant negative effect on the current account, whereas trade has a non-significant positive impact in the long-run. The interaction of the variables in the long-run produces significant positive influence on the account. The short-run effects show a positive impact of financial liberalization, whereas the interplay of the variables has a negative impact on the current account. The study concludes that the interaction of trade and financial liberalization is critical in improving the current account balance in Nigeria.

The study examines the distributional implications of capital account restrictions on three important welfare measurements of concern for policymakers: income inequality, poverty, and external debt. Two approaches are followed, the Autoregressive Distributed Lag (ARDL), and the local projections regression with impulse response functions (IRFs), and applied to a panel data for 102 countries from 1995 to 2019. First, we identify the capital control periods, and second, we follow behavior of these three measurements after these periods. The results show a decline in income inequality and poverty and a decline in external debt. However, four pathways can affect the intensity of capital controls impacts, the financial development and the strength of the financial institutions, the financial crisis probability, the bargaining power of the labor market, and the cost of international debt. The study highlights that additional policies may be needed to redistribute some of the gains of capital controls. [ABSTRACT FROM AUTHOR]

The purpose of this paper is twofold: First, to explore the macroeconomic and institutional factors influencing stock market development (SMD) in Fiji during the period 1996–2018 and second, to explore the causes of the prolonged sluggish nature of the South Pacific Stock Exchange (SPX) in Fiji. A mixed‐method approach was employed: autoregressive distributed lag (ARDL) testing framework was used to estimate the influence of the structural determinants in Fiji while descriptive and narrative analysis was used to explain the status of the SPX. The study findings partially confirmed the findings of previous studies. The findings that economic growth promotes SMD while inflation is negatively correlated to SMD were consistent with previous findings. However, the finding that regulatory quality and banking sector development have negative impacts on SMD was contrary to the findings of previous studies. Many determinants, which have been shown to have significant impact on SMD in other studies, did not show any significant impact on the SPX in the Fijian context, particularly the stock market liquidity showed no correlation to SMD and not distributed normally. Exploration of the nexus of the market liquidity reveals that present regulatory conditions are not conducive for the stock market to be vibrant and suggests eliminating excessive paperwork and entry restrictions are critical, not only to attract new players to the market but also to increase trading volumes. We argue that the concentration of ownership and market disintegration resulted in the current sluggish status of the SPX. [ABSTRACT FROM AUTHOR]

Financial liberalisation can promote economic development in developing and emerging economies (DEEs). Especially international financial flows pose risks to the stability of their financial system though, as recurrent foreign debt crises in DEEs show. How can DEEs benefit from international financial flows while safeguarding financial stability? The case of South Korea shows how DEEs can develop domestic policy frameworks to manage international financial flows while maintaining a high degree of financial openness. With the experience of the foreign debt crisis of 1997/98 in mind, Korean policymakers have interlinked policies (monetary policy, foreign exchange policy and financial regulation), public financial institutions and the development of domestic capital markets to develop a financial stability-oriented policy framework that has served as protection against risks attached to international financial flows. While this policy change substantiates a turn towards a finance-led accumulation regime, the case of Korea illustrates that DEEs are not passive bystanders in financialisation processes. [ABSTRACT FROM AUTHOR]

Financialisation in developing countries is the subject of an expanding literature but its characteristic features and its relationship to developed countries remain unclear. Reviewing the literature, this paper shows that financialisation in developing countries should be distinguished from financial liberalisation and financial globalisation. Furthermore, its character is partly derivative from financialisation in developed countries, as is confirmed by two theoretical approaches, related but different from each other, namely 'subordinate' and 'dependent' financialisation. By further reviewing the empirical literature, the paper also shows that financialisation in developing countries is highly variable and different from that in developed countries regarding the conduct of non-financial enterprises, banks, and households. Moreover, the literature addresses several sources of vulnerability for developing countries relating to financialisation. Finally, there are significant literature gaps, above all, the connection between financialisation and the globalisation of production as well as the role of the state. [ABSTRACT FROM AUTHOR]

This paper studies the conditionality in the relationship between capital flows liberalisation, macroprudential policies, and credit cycles in emerging market (EM) economies. Using quarterly data for 16 EM economies, we document the effectiveness of broad macroprudential measures in containing credit cycles in the EM economies. More importantly and in line with theory, we find that the effect of liberalisation of capital inflows on the excessive credit dynamics is conditional on the stance of the macroprudential regulation. When the macroprudential framework is tight, the liberalisation of capital inflows does not have a statistically significant effect on the excessive credit dynamics. In contrast, in economies with a lax macroprudential framework, the liberalisation of capital inflows may amplify credit expansion. The results provide a rationale to explain often conflicting findings in the earlier empirical literature. [ABSTRACT FROM AUTHOR]

This paper documents evidence of changes in the co-movement of stock returns and risk transmission among four South Asian stock markets over periods of regional market reform and global market instability. The sample period (1993–2015) is disaggregated into three sub-periods: before and after the establishment of the South Asian Federation of Exchanges (SAFE) and after the 2008 Global Financial Crisis. The principal components investigation and cointegration analysis conclude that the co-movement among stock returns in this region altered amidst a change in the institutional context and global economic uncertainty. Using a tetra-variate GARCH-BEKK model, we find that, after the establishment of SAFE, the interactions among the markets increased through volatility spillovers, but decreased through shock spillovers. In addition, there were more shock and volatility spillovers in the last sub-period as compared to the first two sub-periods, indicating that risk transmission across countries increased during the period of uncertainty. In particular, the Indian stock market was a risk spreader in South Asia after the setup of SAFE and its influence on the regional stock markets increased even further after the 2008 Global Financial Crisis. [ABSTRACT FROM AUTHOR]

The study examines the troika of financial liberalisation–volatility–information asymmetry to explore the linkage between financial liberalisation and return volatility across the globe. The financial liberalisation phenomenon was studied across three phases: liberalisation, post-liberalisation, and liberalisation plus post-liberalisation. The results indicate that volatility surged during the liberalisation phase for emerging economies, whereas it significantly declined during the post-liberalisation period. A declining pattern of volatility was observed during the post-liberalisation phase for developed economies. The conditional and unconditional volatility measures were highest during the liberalisation phase for emerging economies, whereas both the volatility measures were higher during the combined liberalisation phase for developed economies. There was evidence of negative asymmetric shock that lowered the volatility in emerging economies, in developed economies, and at the aggregate level.

This study provides evidences about the determinants of income inequality in 31 sampled countries of Europe. Prior to implementing the empirical research, the study identifies the factors, which according to theories, affects the level of income inequality. Income inequality is now an issue bordering not only the developing countries, but also the emerging and the developed ones as well. The results obtained from the estimated model enabled to draw some interesting conclusions. Firstly, quality of the rule of law determines income inequality, secondly, trade liberalisation conditions income, thirdly, level of financial development determines inequality of income and finally, education level in emerging countries decreases level of income inequality, while it increases the level of inequality in the developed countries of the continent.

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Many African countries have experienced episodes of weak growth since 1970 through the 2000s. A fundamental intermediation gap in Sub‐Saharan Africa (SSA) is the extremely limited financing for medium to long term lending facilities to promote growth. Thus, given the importance of financial development on economic growth, this study investigates the impact of financial development on economic growth in SSA, which is sub‐divided into low‐, middle‐ and upper‐income groupings to ascertain whether differences in income levels across countries affect the relative impact of finance on growth. The study adopts the dynamic and static panel data model to analyse 30 SSA countries using annual data over the 1985–2015 period. The findings indicate that financial depth and financial intermediation reduce per capita income growth in low‐ and middle‐income countries. However, it increases growth in upper‐income and the overall sample of SSA countries. Credit supply positively impacts growth in low‐income countries but exerts a significantly negative impact on growth in middle‐income and the overall sample of SSA countries. Financial liberalisation promotes growth in upper‐income and the overall SSA. However, it reduces growth in low‐ and middle‐income countries. Financial development and financial liberalisation are important factors that affect economic growth given different income levels. [ABSTRACT FROM AUTHOR]

This paper examined the effects of the financial liberalization strategy adopted on the African continent over 25 years ago in promoting new business entry using data from 22 sub‐Saharan African (SSA) countries in 2006–2017. Results from the dynamic generalized method of moments models show that: financial development via a policy of financial liberalization does not have a uniform effect on entrepreneurship; the interest rate gap significantly undermines the entrance of new firms; the ratio of broad money/gross domestic product (GDP) was positive and statistically significant while real interest rate had mixed findings; interactive effects of interest rate spread and real interest rate with regulatory quality was negative; the interaction of interest rate spread and real interest rate with natural resources confirms its destabilizing effect, although there was evidence suggesting that natural resources do not directly undermine entrepreneurship growth. Other results show real GDP and private credit have a significantly positive effect, and the cost of getting electricity significantly undermines entrepreneurship. The study calls for the need to deepen the financial sector though targeted reforms across SSA countries to reap its growth‐inducing effects on economic outcomes, while promoting institutional quality and efficient use of natural resources to achieve a non‐declining infusion of SMEs on the continent. [ABSTRACT FROM AUTHOR]

This paper explores whether the asset correlations among the non‐interest activities of banks are the key causes for enhancing the bank diversification‐systemic risk nexus. Our empirical evidence indicates that banks' income diversification significantly raises systemic risk. After removing those banks with high asset correlations, the effect of individual banks' diversification on banking systemic risk turns insignificant or even inverse. The results show that high asset correlations among banks could introduce bank failures, thereby leading to higher systemic risk in the financial sector. [ABSTRACT FROM AUTHOR]

Understanding the nature of state financialisation is crucial to ensure de-financialisation efforts are successful. Therefore, this article provides a structured overview of the emerging literature on financialisation and the state. We define financialisation of the state broadly as the changed relationship between the state, understood as sovereign with duties and accountable towards its citizens, and financial markets and practices, in ways that can diminish those duties and reduce accountability. We then argue that there are four ways in which financialisation works in and through public institutions and policies: adoption of financial logics, advancing financial innovation, embracing financial accumulation strategies and directly financialising the lives of their citizens. Organising our review around the two main policy fields of fiscal and monetary policy, four definitions of financialisation in the context of public policy and institutions emerge. When dealing with public expenditure on social provisions, financialisation most often refers to the transformation of public services into the basis for actively traded financial assets. In the context of public revenue, financialisation describes the process of creating and deepening secondary markets for public debt, with the state turning into a financial market player. Finally, in the realm of monetary policy, financial deregulation is perceived to have paved the way for financialisation, while inflation targeting and the encouragement, or outright pursuit, of market-based short-term liquidity management among financial institutions constitute financialised policies. [ABSTRACT FROM AUTHOR]

This paper provides a comprehensive review of the literature on the dual effect of financial liberalization over more than three decades, starting from the independent contributions of Ronald I. McKinnon and Edwards S. Shaw on this topic. In this regard, the paper revisits the effects of financial liberalization and governance on growth. Moreover, it presents a summary of current research in this area, covering the conclusions of the endogenous growth models, issues on volatility and the relationship between financial liberalization, institutions, governance and economic growth. To study data of 54 countries from 1985 to 2010 and because the nexus between financial liberalization and economic growth is nonlinear and depends on specific national factors especially institutions quality and governance, the Panel Smooth Transition Regression (PSTR) model is used. The main result of this study shows that a better contribution of financial liberalization to economic growth requires the interrelationship and the complementarity between financial liberalization and governance. Overall, regardless of the level of liberalization, output income is always higher with better governance and institutions.

This study aimed to analyse financial liberalisation, political stability, and economic determinants of Kenya’s real economic growth using time series data over the period of 1970–2016. The authors specified quadratic and interactive models to be estimated by employing a quantile regression analysis. The traditional and quantile unit root test was used in testing the stationarity issue. The co-integration findings indicated that the capital account openness and financial development impede on real economic growth; and the political stability also had potential influence on the real economic growth of Kenya. Interestingly, there is a nonlinear U-shape link between financial development and real economic growth that undermined the real economic growth at its onset, but as it advanced, it enhanced the growth of the country in the long run. The policymakers should ensure that the capital account is more liberalised so that it will continue to stimulate the financial development. In the same way, the liberalisation of the domestic financial market should be taken in earnest to overcome the negative effects of financial repression in totality, while maintaining the stable political atmosphere.

This study examines the effect of financial liberalisation on stock market volatility in Nigeria from 1986 to 2016, using the Autoregressive Distributed Lag (ARDL). The ARDL technique facilitates the examination of the short-run and long-run effects of financial liberalisation on stock market volatility. Principal component is used to generate financial liberalisation index from six variables, namely: bank denationalisation, restructuring and interest rate liberalisation, prudential regulation, directed credit abolition, free entry into banking and capital market liberalisation. Stock market volatility is measured, using the standard deviation approach. The result shows a positive effect of financial liberalisation on stock market volatility in Nigeria, both in the short-run and long-run. Other control variables included in the model show different effects on stock market volatility, both in the short run and the long run. The study concludes that the regulatory agency should devise adequate measures to curtail stock market volatility. [ABSTRACT FROM AUTHOR]

Attaining high levels of economic growth and development has been one the goals of the Southern African Development Community (SADC). This paper investigates the relationship between financial liberalisation and economic growth in SADC countries. Annual data for the 15 SADC countries for the period 1985-2011 is used to develop a fixed effect model, system generalised method of moments (GMM). The results reveal that there is a positive relationship between financial liberalisation and economic growth in SADC. However, in the long-run financial liberalisation has a positive but insignificant impact on economic growth. It is thus recommended that the SADC adopt measures to increase the level of financial openness in the region in order to increase economic growth. Prior to the increase in the level of financial openness, well-defined property rights and a sound regulatory framework should be in place to monitor the financial liberalisation process in order to avoid financial crises and ensure that the benefits are long-term. [ABSTRACT FROM AUTHOR]

With formal financial inclusion much lower than its neighbours, Pakistan has been the focus of intensive efforts to 'bank' the 'unbanked'. Yet, after a drop in deposits in the wake of Pakistan's 2008 crisis, deposits are still struggling to return to their mid-1990s' levels. Focusing on distortions in the banking sector, the Central Bank attributes this to 'crowding out' amidst a steep rise in the propensity to consume. This study draws on extensive fieldwork, identifying heightened financial risk driven by multifaceted monetary instability since the liberalisation of the rupee and of Pakistani markets. It proposes that heightened monetary risk has translated into a broad-based shift out of the rupee akin to hyperinflationary responses, but revealed in relatively moderate monetary conditions. It argues that, exposed to global markets, national currency itself has become a risky asset, pushing store-of-value and transactional holdings into unconventional liquid assets. This suggests that monetary stability, expressed in the currency itself and in broader pricing patterns in the economy, is key to the uptake of financial intermediation. The issue at the root of disintermediation in Pakistan, it is argued, is less one of 'crowding out' than of disruption to the role of national currency as money itself. [ABSTRACT FROM AUTHOR]

This article is concerned with the genesis of German financial liberalisation. A refined inventory of financial system change - including new meso-level data on finance pattern and the marketisation of banking - reveals a varied pattern of change across German finance. It is argued that this financial diversification can only be understood with careful reference to the underlying ideational factors. An analytical narrative traces how technocratic ideas of financial modernisation during the 1980s began to open up space for the political program of finance capitalism to absorb liberal and leftist discontents with insider control and bank dominance. Upon reaching a tipping point of discursive dominance, the program was distinctly adopted across the political economy as the result of compartmentally different political, ideational and structural factors; creating a non-hegemonic financial paradigm that became identifiable in the face of recent crises. By developing analytical steps that link incremental and dynamic theories of institutional change in a conceptual framework of belief shifts, the paper contributes to efforts of adapting existing models of change to complex domains and accounting for the dynamic nature of the paradigm-generating process. The findings inform the larger debate about internal capitalist diversity and the coherence of national economic models. [ABSTRACT FROM AUTHOR]

Abstract: An important dimension of the effects of foreign bank presence on financial sector development relates to that of financial inclusion. Despite its significance, the empirical literature offers little evidence on the relationship between foreign banks and financial inclusion. We examine this relationship by focusing on impact of foreign banks on both the accessibility and usage dimensions of financial inclusion for a panel of 50 emerging and developing economies over 2004–2009. Our findings show that foreign banks have a strong positive impact in furthering financial access while tending to impede the usage dimension, which is robust to alternative methodologies and definitions. Copyright © 2018 John Wiley & Sons, Ltd. [ABSTRACT FROM AUTHOR]

This paper explores the origin of China’s recent credit and asset boom by comparing it with the Japanese bubble economy in the late 1980s by focusing on the asymmetric pattern of financial liberalisation under high savings. It argues that (1) both cases show a ‘confidence trap’ in that policy-makers of the government shared a complacent mindset that they can achieve the optimal mix of market liberalisation and repression, while believing that their political economic system is fundamentally different from others; (2) Such complacent confidence precipitated the supply-side driven financial reforms, in which both governments tried to diversify the credit channels of bank deposits by promoting non-bank financial intermediaries; (3) Exogenous shocks played a pivotal role in enforcing the government to take aggressive monetary easing and fiscal expansionary measures. But the Chinese case is different from the Japanese case in that (1) local politics has promoted a ‘too secure to fail’ situation in which rent-seeking activities are difficult to be detected, thus aggravating the hidden systemic risks; (2) China needs to liberalise its capital account with the more strengthened macroprudential regulatory governance, as the global foreign exchange markets have drastically changed from the period of the 1980s. [ABSTRACT FROM AUTHOR]

The Chinese gold market is rapidly rising to global prominence in the recent decades. The paper reviews the history of the gold market in China and its liberalisation process amid the country’s opening to the outside world. Details of the current market structure and its main business are presented. Global impacts of the rise of the Chinese gold market are discussed. [ABSTRACT FROM AUTHOR]

Using international country-level data, this paper shows that demographic ageing is likely to significantly expand the insurance industry. This expansion is driven by the increased need to secure earnings for post-retirement consumption, the desire to hedge against risks associated with increasing age, and the older generations risk aversion increasing the demand for safer assets such as insurance and pension products. Moreover, such an expansion of the insurance industry is particularly apparent in financially liberalised countries. This is because risk and asset management associated with insurance and pension products could be facilitated and more effective in liberalised financial markets. [ABSTRACT FROM AUTHOR]

The competing theories of the macroeconomic trilemma and dilemma are empirically tested for South Africa. The empirical findings show evidence of the trilemma theory being applicable to South Africa, supporting the country's ability to maintain monetary independence (MI). An empirical puzzle, however, emerged as South Africa's MI index decreased during the country's 2000-2014 inflation-targeting period. A possible explanation, and subject for further research, is that the increasing opening of South Africa to international flows since 1995 may have caused South Africa to be more exposed to international business cycles and shocks, resulting in a reduction in measured MI. [ABSTRACT FROM AUTHOR]