Decomposing the Effects of Finncial Liberalization: Growth vs. Crises

Romain Rancière (1) , Aaron Tornell (2, 3) , Frank Westermann (4, 5)

1 IMF - International Monetary Fund
2 NBER - The National Bureau of Economic Research
3 LBNL - Lawrence Berkeley National Laboratory [Berkeley]
4 CESifo
5 Universität Osnabrück - Osnabrück University

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.

Keywords: Financial crises; Growth; Financial liberalization; Treatment effects models

Domains: Humanities and Social Sciences; Economics and Finance

Romain Rancière, Aaron Tornell, Frank Westermann. Decomposing the Effects of Finncial Liberalization: Growth vs. Crises. Journal of Banking and Finance, 2006, 30 (12), pp.3331-3348. ⟨10.1016/j.jbankfin.2006.05.019⟩. ⟨halshs-00754116⟩