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Sources and legitimacy of financial liberalization

By Brian Burgoon, Panicos O. Demetriades and Geoffrey R. D. Underhill


This article seeks to clarify how we understand domestic and international sources of globalization and specifically how we explain financial liberalization across countries. The article also develops our understanding of the underlying legitimacy of financial liberalization. We debate e.g. Abiad and Mody (2005) and others who have found political factors to have little impact on financial openness. Using the same data undergirding such conclusions we argue, in contrast, that even a slight broadening of the political variables employed in the model and much closer attention to “input” and “output” aspects of the political legitimacy of financial liberalization over time reveal a more central role for politics in shaping liberalization. Input legitimacy involves the representation of stakeholders in initial and ongoing decisions to liberalize, while “output” legitimacy concerns liberalization's distributional consequences and management thereof over time. Several empirical measures of domestic-national and international political factors plausibly influence such aspects of legitimacy and are found to play a significant role in shaping liberalization, suggesting legitimation politics to be more important to financial openness than existing studies have typically acknowledged.Peer-reviewedPost-prin

Topics: Financial openness, Liberalization dynamics, Financial regulation, Political legitimacy, Political variables, Financial reform
Publisher: Elsevier
Year: 2011
DOI identifier: 10.1016/j.ejpoleco.2011.10.003
OAI identifier:

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