CIAO DATE: 06/05

Economic Conditions, Democracy and the IMF

Abstract

This study seeks to test the hypotheses that different styles of financial market opening can be explained, in part, by general economic conditions and the need to attract external capital. It seeks, as well, to test the some for the more general arguments advanced in the financial market opening literature that financial market opening is a result of a country's increased participation in the international financial system and increased international trade integration. Two specifically political arguments also are tested. The first is that emerging markets opened their markets in response to pressure from the IMF. The second is that there is an association between political freedom and open markets. I test these hypotheses using regression analyses of panel data from a sample of emerging market countries.

The findings that emerge from this analysis provide some support to the hypothesis that economic conditions affect styles of financial market opening. However, the relationship between economic conditions and style is more complex than hypothesized by Lukauskas and Minushkin (2000), as will be explained in the conclusion to this study. The results also support assertions that a country's international trade and financial integration increases pressures within the country for government to reform financial regulation. Neither of the political variables demonstrates strong relationships with style of opening. Yet the finding from the analyses do show that there is a relationship between IMF borrowings and depth of financial market opening as well as the probability of maintaining only barriers to exit. No support is found for arguments that associate political freedom with financial market opening.

Full Text (PDF, 37 pages, 1.96 MB)