Domestic financial reforms and crisis recoveries

We examine empirically whether domestic financial reforms lead to faster recoveries from financial crises. Using a duration analysis approach and financial reform indicators from Abiad, Detragiache, and Tressel (2010), we find robust evidence that a higher overall level of domestic financial liberalization is associated with a significantly shorter duration of recovery. This effect exists in both the downturn and upturn stages of a crisis but matters only for developing countries. We also check the effect of each individual dimension of domestic financial reforms and find they all contribute to significant faster crisis recoveries except for privatization of the banking sector.