A lesson from Asian banking crisis to the last US and UE ones: a spatial econometric approach

To find a lesson to US and UE banking crises, this paper studies the factors associated with the emergence of banking crises during the process of financial liberalisation in a large sample of cross-countries in 1989-1997 using a spatial Durbin model in a panel data econometrics. The empirical results suggest that financial liberalisation has the tendency to stimulate the banking instability in emerging economies. Then we find evidence that the measures of bank regulation variables also contributed, either positively or negatively, towards the observed crisis outcomes, with poor institutional environment playing a particularly significant role. The inclusion of regional variables has a major effect on the estimations, even if most of the qualitative results are preserved. Indeed, some estimated coefficients become larger and more significant when the regional variables are included. And the great virtue of economic downturn is then to remind us that we can not sustainably invest resources in doubtful productivity sectors.