Working Paper: NBER ID: w28994
Authors: Nan Li; Chris Papageorgiou; Tong Xu; Tao Zha
Abstract: Using a novel database of domestic financial reforms in 90 countries over 1973-2014, we document that global financial liberalization followed an S-curve path: reforms were slow and gradual in early periods, accelerated during the 1990s, and slowed down after 2000. We estimate a learning model that explains these dynamics. Policymakers updated their beliefs about the growth effects of financial reforms by learning from their own and other countries' experiences. Positive growth surprises in advanced economies helped accelerate belief updating worldwide, leading to the global wave of financial liberalization in the 1990s. The 2008 financial crisis, however, caused significant belief reversals.
Keywords: financial liberalization; S-curve; belief updating; global financial crisis; emerging economies
JEL Codes: C11; C54; O11; O50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial reforms (G28) | Economic growth (O49) |
| Positive growth surprises in advanced economies (O49) | Belief updates about financial reforms (G18) |
| Belief updates about financial reforms (G18) | Wave of global financial reforms (F65) |
| 2008 financial crisis (F65) | Reversals in beliefs about financial reforms (G18) |
| Learning from advanced economies (O57) | Financial liberalization processes in emerging markets (F30) |