Financial liberalization, disaggregated capital flows and banking crisis: Evidence from developing countries

The aim of this paper is to examine whether or not financial liberalization has triggered banking crises in developing countries. We focus in particular on the role of capital inflows as their volatilities threat economic stability. In the empirical model, based on Panel Logit estimation, we use the two common financial liberalization indicators (de facto and dejure) for a panel of 58 developing countries for the period from 1984 to 2007. Unlike the previous studies, this paper reveals that both indicators of financial liberalization did not trigger banking crises in our sample.