The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Financial Liberalization

  • Romain Rancière
  • Aaron Tornell
  • Frank Westermann
Reference work entry


Financial liberalization has led to financial deepening and higher growth in several countries. However, it has also led to a greater incidence of financial crises. Here, we review the empirical evidence on these dual effects of financial liberalization across different groups of countries. We then present a conceptual framework that explains why there is a trade-off between growth and incidence of crisis, and helps account for the cross-country difference in the effects of financial liberalization.


Bail-out guarantees Banking crises Boom–bust cycles Capital account liberalization Contract enforceability Credit growth Currency crises Economic growth Equity market liberalization Financial liberalization Financial openness Foreign direct investment India Insolvency risk International flows Investment Investment subsidies Lending booms Portfolio flows Probit models Prudential regulation Skewness Thailand Tradable and non-tradable Sectors Trade liberalization 

JEL Classification

F3 F4 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Romain Rancière
    • 1
  • Aaron Tornell
    • 1
  • Frank Westermann
    • 1
  1. 1.