During the last few decades, many developing countries have lifted restrictions on cross-border financial transactions. The effects of financial liberalization vary across liberalizing countries. Specifically, the effects depend on the level of economic development of the country, on whether it has developed or underdeveloped financial markets, and on whether it has high- or low-quality institutions. In our paper, we present a simple model that can account for the observed effects of financial liberalization. The model emphasizes the role of imperfect enforcement of domestic debts and the interactions between domestic and international financial transactions.
Broner, F.; Ventura, J. Rethinking the Effects of Financial Liberalization (IGC Policy Brief). International Growth Centre (IGC), London, UK (2011) 3 pp.