Financial Openness and Financial Crisis: Econometric Evidence

Abstract

This study develops an empirical analysis of the relationships between financial openness and financial crises. Data are used for 160 countries over the period 1970-2011 and nonlinear panel data models for the likelihood of financial crises are estimated. The outcomes denote the following patterns: i) for the sample of 160 advanced, emerging and developing countries, there are evidences that a higher level of financial openness reduces the likelihood of currency and sovereign debt crises and increases the likelihood of systemic banking crises; ii) for the sample of 33 advanced countries, the results show that higher financial openness diminishes the likelihood of currency crises and there is no statistically significant relationship between financial openness and the likelihood of systemic banking crises; iii) for the sample of 127 emerging and developing countries, there is no statistically significant relationship between financial openness and currency, systemic banking and sovereign debt crises.