Financial liberalization experiences and economic stability in developing countries

ABSTRACT One of the important progresses in the last twenty five years period is the acceleration that globalization phenomenon gained. The globalization that can be defined basically as integration of world countries and peoples means, thanks to the information technology reduced the costs of transportation and communication in considerable amount, the elimination of artificial barriers that are before of overcome the boundaries of goods, services, capital, information and lessen human beings. The globalization phenomenon has also influence on financial markets. The capital flows freely among boundaries, and intensive capital inflows has been occurred particularly in the markets that have potential for high yield. On the other hand, the basic aim of developing countries which have two structural problems as saving and exchange deficits in their economies is the obtain of a maintainable growth process. This situation of globalization presents opportunity that can help the developing countries for realizing their abovementioned aims. One of the proposed policies that can assure this is the financial liberalization. The thing that must be done is to give up the financial repression policies and to get ride of the artificial national barriers before capital. Thus, the capital can be utilized in a place where it will be most productive. This approach that envisages the financial integration of world economies had found opportunity for application on a lot of developing countries in the last twenty five years. These countries including Turkey are located in the geography from Latin America to Southeast Asia. In today's world where financial markets are integrated gradually, however, an instability that occurred in financial market of any country can cause successive instabilities at international financial markets and subsequently economic crises. The unique peculiarities and the signal differences from previous ones of the crises that occurred at international markets lead the absence of envision of crises. Whatever the reasons of the crises are, the results of them are the same. As a result of the decrease in national product, people become impoverished, unemployment has risen and the investors have lost money due to the fluctuations in financial markets. The debates have concentrated on globalization and financial liberalization policies, especially after The Asian Crisis 1997 that its effects have been echoed in the whole world. Interrogation of whether these policies serve to the aim of maintainable economic growth for developing countries has become a current issue. In this context, the financial liberalization theory has been studied in the thesis. The experiences of developing countries where the theory has been transferred into application have been evaluated together with progress of economic stability. The findings obtained indicate that the sources of economic instability in the developing countries which are applied financial liberalization policies are structural weaknesses. It should be noted that financial and subsequently economic crises are inevitable if financial liberalization policies have applied without elimination of these problems. The financial crises of 1982, 1987, 1994 and 2001 that have been occurred in post-1980 era in Turkey are the samples of this situation.