Abstract
Although economic theory argues that financial openness promotes economic growth, several experiences in developing countries do not support this theoretical reality. Turkish experience is one of the best examples since Turkey suffered three financial crises in 1994, 1998–1999, and 2000–2001, following the liberalization policies implemented through the 1980s, but managed to improve economic outcomes dramatically in the post-2001 period. This is mainly due to more effective fiscal and monetary management, strengthened banking regulation, and conservative banking practices pursued over the last decade and a half that significantly contributed to greater financial stability. Hence, this paper argues that to raise the potential benefits of financial openness, particularly in emerging countries, it should be implemented in a well-designed, effective supervisory and regulatory framework and in a sequenced manner.
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- 1.
Note that we distinguish short-term capital flows from foreign direct investments , which are considered to be more stable long-term investments . Hence, they are less likely to destabilize the domestic economy.
- 2.
Kara (2016) gives some highlights of these prudent banking policies: ‘Banks were not allowed to have currency mismatches, foreign currency loans to consumers were prohibited, there were restrictions on foreign currency lending to non-financial firms, and tight restrictions were imposed on distributing bank dividends, new bank entry, branch openings etc.’
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Ari, A. (2018). Financial Openness, Financial Stability, and Macroeconomic Performance in Turkey: A Comparative Perspective. In: Aysan, A., Babacan, M., Gur, N., Karahan, H. (eds) Turkish Economy. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-70380-0_7
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DOI: https://doi.org/10.1007/978-3-319-70380-0_7
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