Financial liberalization and financial fragility

The authors study the empirical relationship between banking crises and financial liberalization using a panel of data for 53 countries for 1980-95. They find that banking crises are more likely to occur in liberalized financial systems. But financial liberalization's impact on a fragile banking sector is weaker where the institutional environment is strong--especially where there is respect for the rule of law, a low level of corruption, and good contract enforcement. They examine evidence on the behavior of bank franchise values after liberalization. They also examine evidence on the relationship between financial liberalization, banking crises, financial development, and growth. the results support the view that, even in the presence of macroeconomic stabilization, financial liberalization should be approached cautiously in countries where institutions to ensure legal behavior, contract enforcement, and effective prudential regulation and supervision are not fully developed.Banks&Banking Reform,Financial Crisis Management&Restructuring,Insurance&Risk Mitigation,Payment Systems&Infrastructure,Insurance Law,Financial Economics,Financial Intermediation,Banks&Banking Reform,Financial Crisis Management&Restructuring,Insurance&Risk Mitigation

International Financial Liberalization and Industry Growth

The growth effects of international financial liberalization and integration are investigated using the methodology and data developed by Rajan and Zingales (1998). The main result is that industries highly dependent on external financing do not experience higher growth in value added in countries with liberalized financial markets. Liberalization does, however, increase the growth rates of both production and firm creation among externally dependent industries – given that countries have reached a relatively high level of financial development. These results are consistent both with increased competition and increased outsourcing. Some preliminary evidence point towards the latter explanation.Financial liberalization; Financial integration; Economic growth

International Financial Liberalization and Industry Growth

The growth effects of international financial liberalization and integration are investigated using the methodology and data developed by Rajan and Zingales (1998). The main result is that industries highly dependent on external financing do not experience higher growth in value added in countries with liberalized financial markets. Liberalization does, however, increase the growth rates of both production and firm creation among externally dependent industries - given that the countries have reached a relatively high level of financial development. These results are consistent both with increased competition and increased outsourcing. Some preliminary evidence point towards the latter explanation.Financial Liberalization; Financial Integration; Economic Growth

Calculating the Cost of the Universal Service Obligation: The Need for a Global Approach

The paper presents the basic approaches to calculate the cost of the USO and compares them with the requirements of the 3rd postal directive. We conclude that the profitability cost approach will lead to consistent estimations if it is applied in a global way. We illustrate our findings with an econometric estimation of the net costs of Swiss Post’s obligation to provide a nationwide post office network for postal and financial services. We finally illustrate that the financing mechanism in place must be considered as well as there are important drawbacks on the cost of the USO.USO, net costs, cost of the universal service obligation, financing, Post Office Network, Global Approach

Transmission and Generation Investment in Electricity Markets: The Effects of Market Splitting and Network Fee Regimes

In this paper we propose a three–level computational equilibrium model that allows to analyze the impact of the regulatory environment on transmission line expansion (by the regulator) and investment in generation capacity (by private firms) in liberalized electricity markets. The basic model analyzes investment decisions of the transmission operator (TO) and private firms in expectation of an energy only market and cost-based redispatch. In different specifications we consider the cases of one versus two price zones (market splitting) and analyze different approaches to recover network cost, in particular lump sum, capacity based, and energy based fees. In order to compare the outcomes of our multi–stage market model with the first best benchmark, we also solve the corresponding integrated planer problem. In two simple test networks we illustrate that energy only markets can lead to suboptimal locational decisions for generation capacity and thus, imply excessive network expansion. Market splitting heals those problems only partially. Those results obtain for both, capacity and energy based network tariffs, although investment slightly differs across those regimes

Financial liberalization, saving, investment and growth in MENA countries

Over the last two decades MENA countries as much of the developing countries have experienced a wave of liberalization of financial sector. The purpose of this paper is three fold: to review the literature on the rationale for financial repression, examining why governments adopt financial repression policies; to examine the theoretical and empirical literature on the links between financial liberalization, savings and investment; to assess the effect of financial reforms on economic performance in the specific case of MENA countries. The paper attempts to capture the effects of both banking sector and stock market developments, focussing on Egypt, Jordan, Morocco, Tunisia and Turkey between 1970-1998.Financial liberalization, saving, growth, MENA countries, Morocco

The Degree of Financial Liberalization and Aggregated Stock-return Volatility in Emerging Markets

In this study, we address whether the degree of financial liberalization affects the aggregated total volatility of stock returns by considering the time-varying nature of financial liberalization. We also explore channels through which the degree of financial liberalization impacts aggregated total volatility. We document a negative relation to the degree of financial liberalization after controlling for size, liquidity, country, and crisis effects, especially for small and medium-sized markets. Moreover, the degree of financial liberalization transmits its negative impact on aggregated total volatility through aggregated idiosyncratic and local volatilities. Overall, our results provide evidence in favor of the view that the broadening of the investor base due to the increasing degree of financial liberalization causes a reduction in the total volatility of stock returns.return volatility;financial liberalization;market integration;volatility decomposition;emerging markets