The effects of financial liberalisation in emerging market economies

Abstract

The aim of this research is to show the effects of financial liberalisation on emerging market economies, how these economies removed restrictions on financial institutions so that they can be globally integrated, and to show the flow of international finance in and out of a country. This research also illustrates how the financial system in these economies moved from being government-led to being market-led. The main finding of this research is that many countries failed to reap the benefits of liberalisation because of weaknesses in the regulatory structure, undercapitalised banks, volatile markets and contagion effects. The research concludes that the long-term gains of liberalisation certainly supersede short-term instability of liberalisation. Thus, for financial liberalisation to have predominantly positive effects, attention should be drawn to the importance of a more prudent regulatory and supervisory environment. Furthermore, financial liberalisation must be accompanied by a sound institutional infrastructure, proper conduct of monetary and fiscal policies, a reduction in corruption, and an increase in transparency. In addition, liberalisation should be a gradual process whereby the right measures are taken in the right sequence.