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Short-Run Pain, Long-Run Gain

The Effects of Financial Liberalization

Sergio Schmuckler

Paper  1.4mb pdf

We examine the short- and long-run effects of financial liberalization on capital markets. To do so, we construct a new comprehensive chronology of financial liberalization in 28 mature and emerging economies since 1973. We also construct an algorithm to identify booms and busts in stock market prices. Our results indicate that financial liberalization is followed by more pronounced boom-bust cycles in the short run. However, financial liberalization leads to more stable markets in the long run. Finally, we analyze the sequencing of liberalization and institutional reforms to understand the contrasting short- and long-run effects of liberalization.

About the Author

Sergio L. Schmuckler
Lead Economist, Development Research Group
The World Bank

Publication Information

Type Network Papers
Program Capital Market Liberalization
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Posted 07/12/10