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Journal of Economic Integration 2013 March;28(1) :59-84.
Liberalization Process and Financial Instability: A Mediterranean Perspective

Aidi Wafa 

University of Sud Toulon Var-LEAD, La Garde, France Higher Institute of Management, UAQUAP, ISG de Tunis, Tunisia
Corresponding Author: Aidi Wafa ,Tel: + 33 494142982, Fax: +216 71491370, Email:
Copyright ©2013 Journal of Economic Integration
This paper revisits the debate on the financial stability implications of the liberalization process dynamics. We hold that the financial liberalization effect on exchange pressures changes beyond some threshold degrees. Therefore, we assess the ability of the threshold models to gauge financial liberalization dynamics. We provide empirical evidence from 9 MENA countries over the period of 1980 to 2008. Our results suggest that financial integration exerts nonlinear effects on speculative pressure conditionally to the dynamics of the liberalization process. Moreover, the country which maintains an optimal liberalization dynamic will be later exposed to an “exchange pressures” effect from its financial liberalization process. Alternatively, evolving within nonoptimal dynamics have led to an increase in a country’s vulnerability to speculative pressures since the early stages of liberalization. From this view, the liberal reform dynamics may constitute an important determinant of a country’s financial stability.

JEL Classification
F36: Financial Aspects of Economic Integration
F32: Current Account Adjustment; Short Term Capital Movements
F3: International Finance
G01: Financial Crises
C33: Models with Panel Data; Longitudinal Data; Spatial Time Series
C13: Estimation: General
Keywords: Sequencing of Liberalization | Financial Integration | Threshold Models | MENA Region
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