Book contents
- Frontmatter
- Contents
- List of Contributors
- Preface
- ANALYTICS
- CROSS-COUNTRY EVIDENCE
- LIBERALIZATION EXPERIENCE FROM CONTRASTING STARTING POINTS
- 5 Financial Restraints and Liberalization in Postwar Europe
- 6 The Role of Poorly Phased Liberalization in Korea's Financial Crisis
- 7 Interest Rate Spreads in Mexico during Liberalization
- 8 The Financial Sector in Transition: Tales of Success and Failure
- 9 Indonesia and India: Contrasting Approaches to Repression and Liberalization
- 10 Reforming Finance in a Low Income Country: Uganda
- Index
5 - Financial Restraints and Liberalization in Postwar Europe
Published online by Cambridge University Press: 12 January 2010
- Frontmatter
- Contents
- List of Contributors
- Preface
- ANALYTICS
- CROSS-COUNTRY EVIDENCE
- LIBERALIZATION EXPERIENCE FROM CONTRASTING STARTING POINTS
- 5 Financial Restraints and Liberalization in Postwar Europe
- 6 The Role of Poorly Phased Liberalization in Korea's Financial Crisis
- 7 Interest Rate Spreads in Mexico during Liberalization
- 8 The Financial Sector in Transition: Tales of Success and Failure
- 9 Indonesia and India: Contrasting Approaches to Repression and Liberalization
- 10 Reforming Finance in a Low Income Country: Uganda
- Index
Summary
The recent wave of currency and financial crises that have rattled most of the emerging market economies from Asia, Europe, and South America is deeply related to the process of financial liberalization over the preceding decade. The human, economic, and political costs of the crisis are staggering. They must be set against the benefits of financial liberalization. Proponents of liberalization rest their case on the improved allocation of resources which is expected to follow, as well as on the erosion of the effectiveness of restrictions. But just how big are these gains, especially if the controls “do not work”? Ex ante, of course, one cannot offer estimates. Ex post, when the costs of crises are accounted for, the balance is doubtful. Yet, the proponents of financial liberalization feel that they do not have to offer the kind of cost and benefit analysis that is customary in other circumstances. Theory, it is claimed, is unambiguous and since the benefits accrue permanently they must outweigh whatever costs occur in the interim period.
Theory, unfortunately, is not as one-sided as it is often made to be. If financial markets were operating fully efficiently, the case for liberalization would indeed be clear cut. Financial markets, however, are known to suffer from serious defects associated with the phenomenon of asymmetric information. The tendency of financial markets to display extreme instability is well recognized. Indeed virtually all financial markets are subject to public interventions in the form of extensive regulations and careful overseeing.
- Type
- Chapter
- Information
- Financial LiberalizationHow Far, How Fast?, pp. 125 - 158Publisher: Cambridge University PressPrint publication year: 2001
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