External Financial Liberalization and Macroeconomic Performance in Emerging Countries: An Empirical Evaluation of the Brazilian Case

This article evaluates the effects of external financial liberalization on Brazilian macroeconomic performance from 1995 to 2016. Its main contributions are to assess the influence of the global financial cycle on the level of external financial liberalization and to analyse the short- and long-run macroeconomic effects of such liberalization on the performance of a peripheral economy in the global currency hierarchy. Methodologically, the article employs the Markov-Switching Vector Autoregressive and Vector Error Correction models. The results show that the global financial cycle directly affects cross-border financial flows and frames the impact of external financial liberalization on the macroeconomic performance. The article concludes that external financial liberalization has negative macroeconomic effects in the short run and generates a trade-off between stability and growth in the long run.