Chronicle of a Death Foretold and Fly Away Peter Comparative Essay Essay Example for Free

Chronicle of a Death Foretold and Fly Away Peter Comparative Essay Essay Menace and threat are two elements in fiction that often help to create tension and build towards a climax. These components are evident in David Maloufs Fly Away Peter and Gabriel Garcia Marquezs Chronicle of a Death Foretold under two overarching themes: sense of duty and violence. Through the perspectives and experiences of different characters in the stories, both Malouf and Marquez develop the concept of peril that is sustained throughout their stories of war and murder. In Fly Away Peter, Malouf introduces the notion of threat in the context of war a place where people, including peace lovers like Jim, are forcibly drawn into. Jim is invited by Bert to ride on the bi-plane and Malouf reveals his blood fear, a bone fear, of leaving the earth and is thus portrayed as being resistant to change. When the war arrives, he feels panicky on this new and dangerous slope that had once been ground [that] stretched away to a clear future Brisbane is sliding towards Europe and the war as it is a duty befallen on patriotic men to prove their worth in defending the honour of their country. Many people seem to be supporting this view; Jim meets a girl who says passionately she would want to be in it because it is an opportunity, and similarly his father feels it is a chance to reach out and touch a unique thing. Malouf thus draws our attention to Jims change as he slide[s] with the rest down into the pit of war with superstitious dread and juxtaposes this to his initial uneas[e] about the new presence of bi-planes and man-made technology. This creates a sense of foreboding and threat, further emphasized by warnings such as catastrophe and madness, as Jim plunges into a brutal world of war from his sacred haven in the sanctuary (the light, and then the dark) to fight for his country. On the other hand, Marquez expresses the idea of threat in Chronicle of a Death Foretold through the rigidness of the townspeople in their ideas regarding tradition and family honour. To uphold the honour of their sister, the Vicario twins perceive as their duty to kill Santiago who supposedly took her virginity. However, this crime is largely condoned by their Catholic society and even Father Amador the priest pronounces their innocence before God. Marquez presents a town where first-degree murder is justified in the name of the cult of virginity and it is the responsibility of the men in the town to defend this tradition. Prudencia Cotes would never have married [Pablo] if he hadnt done what a man should do. Her mother tells Pedro and Pablo them honour doesnt wait and Clotilde Armenta voices her sympathy in saying it is a horrible duty thats fallen on them as they are duty-bound to avenge Angela. The twins are forced to conform to societys expectations of masculine assertiveness even if they couldnt sleep for the rest of [their lives] on their conscience. In killing Santiago, the twins have proved their status as men [and] the seduced sister was in possession of her honour once more in defending the validity of their culture. The town can be viewed, to an extent, as dysfunctional and a tense atmosphere is present throughout the book as readers know the threat of this cult will result in an innocent mans death. The theme of violence is exemplified in many characters and through the eyes of Jim, we see the menace posed in Mans capacity to cause suffering and death in Fly Away Peter. Even before the war, violence is hinted as being part of daily life when Jim witnesses the killing of a lone man with his hands over his face with blood between them as another figure, hurling itself from the shadows, brought him down. Although Jim has always been consciously rejecting any notions of violence, he discovers black anger in himself and a potential for violence when he faces Wizzers bullying later. He is shaken to realize that he has come closer to his fathers [similar] nature of violence unwittingly to the extent that he does not wish to be confronted with some depth in himself that frightened him and he doesnt understand. Killing in war is also epitomized by the brutality of Clancys death where Jim experiences for the first time Mans ruthlessness on a personal level. Clancys senseless death comes as a shock to him and Jim is greatly affected by this; the hosing off never left him clean and often woke from nightmares drenched in a wetness that dried and stuck. Malouf forcefully juxtaposes the previous setting of Jim buttering slabs of bread with the diversely opposite scene of Clancys accident, effectively demonstrating the harsh reality of war. Clancys passing further shows another step in Jims loss of innocence as he feels touched by the horrors of war and menace is manifested in Fly Away Peter through the ordinariness with which violence presents itself. Violence is a dominant theme in Chronicle of a Death Foretold as it is in Fly Away Peter as it leads to the ultimate menace of Santiagos death. It is a minor yet significant part of everyday life for most of the town; Victoria Guzman [disembowels] rabbits pull[s] out the insides by the roots and throw[s] the steaming guts to the dogs and Leandro Pornoy dies gored in the jugular vein by a bull all of which are accepted by the town matter-of-factly. The murder of Santiago is brutal as his liver was almost sliced in pieces, his pancreas [was] destroyed and there were perforations in the transverse colon and small intestine among other injuries. His death has been brought on by any one of the seven major wounds and this reflects an unnecessary level of violence on the part of the Vicario twins. Even after his death, Santiagos autopsy is mishandled as a syrup-coloured liquid began to flow from the wounds, drawing flies, and a purple blotch appeared on his upper lip and spread out very slowly up to his hairline and Father Amador remarks it was as if we killed him all over again after he was dead. Through the use of violence in the lives of common people and graphic imagery illustrating the aftermath of a murder, Santiagos killing mirrors the menace in which the town is under in their acceptance of the idea of violence. The themes of male duty and violence in both Fly Away Peter and Chronicle of a Death Foretold develop the concepts of threat and menace. Malouf uses Jims dilemma in enlisting for the war to highlight the threat of the blind trend in which men fight to prove their masculinity even though it results in countless lives lost and Jims experiences in the war that draw on the idea of menace in the form of violence. Conversely, Marquez develops the notion of threat through the tradition of the town surrounding Angela Vicarios enigmatic predicament which precipitates the menace of Santiagos murder wherein violence plays an important role. A tense and portentous atmosphere is thus crafted in both books as the authors expand on these themes, building up to a final climax.

Protective Factors Among Youth Offenders Psychology Essay

Protective Factors Among Youth Offenders Psychology Essay Causal explanations of delinquent behavior and the identification of risk factors that characterize the young criminal offender have been the devotion of volumes of theoretical and empirical research. In an attempt to understand the causes of delinquency, and to work towards effective interventions, the juvenile justice field has adopted an approach from the public health arena (Shader, 2003), this approach toward the public health model, according to Farrington (2000), is the risk factor paradigm. Following this model, a risk assessment is thought to aid in identifying youth who possess the key risk factors for delinquency, and determining the type of intervention that will be best suited for the youths needs (Shader, 2003; Farrington, 2000). Risk factors are those conditions that are associated with a higher likelihood of negative outcomes, such as having trouble with the law and engaging in problem behavior. Such factors can compromise an individuals health, well-being, and social performance (Jessor, Van Den Bos, Vanderryn, Costa, Turbin, 1995). Findings from research on risk factors for delinquency have consistently shown these factors as predictive of increased probability of delinquency; however, this does not mean that the presence of risk factors, will definitely lead to offending or delinquency (Shader, 2003). From the risk perspective, the youth offender is depicted on a trajectory of criminality; with repeated delinquency leading to career paths in criminal activity later in life. However, not all of those exposed to risk factors and adverse circumstances, continue to commit criminal acts. Focusing on those adolescents who have desisted from delinquent involvement, and have transcended the limitations of their environment, emphasis is placed on the strengths and assets (protective factors) of youth offenders (Carr, Vandiver, 2001). Research within recent decades have brought major advances in the prediction of who becomes a serious delinquent; findings indicate that factors in several domains-in the individual, fami ly, peer group, school, and neighborhood-contribute to the prediction of delinquency (Loeber, Pardini, Stouthamer-Loeber, Raine, 2007). This work has prompted researchers to investigate the factors that may act as a safeguard, or provide a buffer between risk factors and delinquency. To better understand the protective factors that differentiate between nonrepeat and repeat youth offenders, this study further investigates the constructs of self-efficacy, empathy, problem-solving, and self-awareness in two ways: (a) in comparison to the normative data on these four internal assets and (b) in relation to risk for recidivism in youth offenders. Unlike prior studies, the current study will exclude external assets and look solely at these four internal assets of youth offenders and their relationship with recidivism within six months. For the purposes of this study and consistent with other studies of juvenile delinquency, recidivism is defined as being referred to the juvenile court or being adjudicated on another criminal other than the youths initial contact with juvenile probation. Status offenses (e.g., curfew violations, tobacco use) were not considered re-offenses. These four internal assets were chosen based on the available data and their importance, as relat ed to the development of resiliency. As a prelude to this investigation, a review of the literature is provided across the following topics as related to youth offenders: (a) juvenile delinquency in the United States, (b) theoretical background, (c) resilience, and (d) internal assets as protective factors. Juvenile Delinquency in the United States Over the last few decades, juvenile courts in the United States have seen an overall pattern of increase in the number of delinquency cases that involved juveniles charged with criminal law violations. From 1985 to 1997, the number of delinquency cases climbed steadily (63%), and in 2009, there were approximately 30% more juvenile delinquency cases than in 1985. Puzzanchera and Adams (2011) report 1.9 million arrests of persons under the age of 18 in 2009; juveniles under the age of 16 accounted for the majority (52%) of delinquency cases handled. Considering the staggering number of juvenile delinquency cases, it is important to also consider the number of those who return to juvenile court. According to the Office of Juvenile Justice and Delinquency Prevention (OJJDP) report there is no national recidivism rate for juveniles. Such a rate would not have much meaning since juvenile justice systems vary so much across states. This  OJJDP report  does, however, contain a summary of findings from recidivism studies conducted at the state-level. State studies have shown rates of rearrests for youth, within 1 year of release from an institution, average 55%, and nearly 6 in 10 juveniles returned to juvenile court by the time they turned 18-years-old (OJJDP, 2012). In efforts to explain the prevalence of juvenile delinquency, theorists have proposed the existence of distinct developmental pathways with different etiologies (Farrington, 2003; Moffitt, 1993; Thornberry, Krohn, 2005; van der Geest, Blokland, Bijleveld, 2009). Theoretical Background The development of offending, has demonstrated a bell-shaped pattern, increasing in early adolescence and decreasing throughout adulthood (van der Geest et al., 2009). In an attempt to explain the process of delinquency that lead to this distinctive shape, Moffitt (1993) developed a dual taxonomy of offending behavior, which was later expanded to include a third group. Delinquency, according to Moffitt (1993), could be best understood if viewed as progressing along at least two developmental paths: those who continue to offend pre- and post- adolescence are life-course persisters, and those who only offend during adolescence are adolescent-limited offenders. In her developmental taxonomy, Moffitt argued that although delinquency is most often temporary, a small proportion of youth continue to offend beyond adolescence (1993, 2006). The large group of adolescence-limited offenders is composed of average youth from nonproblematic backgrounds. Adolescent-limited offenders have usually m aintained empathy and learn socially approved behaviors. Delinquency for these adolescents is considered normative, rather than abnormal. Thought to be rebelliously acting out personal autonomy, their minor delinquency often does not result in criminal justice involvement (Moffitt, 2006). Criminal activity for adolescent-limited offenders, is confined to the adolescent years; suggesting that causal factors may be specific to the period of adolescent development (Moffitt, 1993). According to Moffitt (1993) the rise in delinquent behaviors, for this type of offender, is markedly coincidental with the onset of puberty. This developmental period is characterized by features such as variability in biological age, increasing importance of peer relationships, and maturing of self-conscious values, attitudes, and aspirations (Moffitt, 1993). For youth considered to be classified as life-course-persistent (LCP) offenders, signs of persistent antisocial behavior can be detected early in life. Moffitt (1993) posits that there is evidence that these offenders suffer from deficits in neuropsychological abilities, such as deficits in verbal and executive functions. Verbal deficits can be seen affecting receptive listening and reading, problem solving, memory, and expressive speech. Inattention and hyperactivity are symptoms of executive deficits, which have been associated with this category of offenders (Moffitt, 2003). Personal characteristics of life-course-persistent offenders are thought to interact with their environment, produce negative outcomes, and promote delinquency across time and life domains. Moffitt (1993) suggested that the continuity of delinquent behavior may occur because these individuals fail to learn conventional prosocial alternatives, miss out on opportunities to acquire and practice such alternatives at each stage of development, and become ensnared in a deviant life-style by crimes consequences (p. 683). Life-course-persistent offenders are most at-risk for continued criminality when individual and family-level risk factors coincide (Moffitt, 1993; Thornberry, Krohn, 2005, van der Geest et al., 2009). In 2006, Moffitt added a third group to her taxonomy: low-level chronic offenders. These youth are thought to persist in delinquent activities, much like the life-course-persistent offenders, but do not increase in severity, or participate in serious or violent acts. In order to understand differences across these three developmental trends for delinquency, researchers have examined differences across factors that influence the different behavioral outcomes of desistence versus persistence in crime for youth offenders. The social-psychological framework known as Problem-Behavior-Theory was initially developed for a study of alcohol abuse and other problem behaviors in a small tri-ethnic community. Since then, problem-behavior theory has been employed in a variety of studies to account for a variety of adolescent behaviors including delinquency. Problem behavior is defined as behavior that departs from the norms-both social and legal- of the larger society (Jessor, 1987). Problem-behavior theory, according to Jessor (1987), has a psychosocial perspective, rather than biological, medical, or genetic. The psychological, social, and behavioral characteristics of a juvenile, as well as the relevant dimensions of the larger social environment and the attributes of the situation, provide an explanation of problem behavior (Jessor, 1987, p. 331). Problem-behavior theory emphasizes three systems of explanatory variables: perceived-environment system, personality system, and behavior system (Jessor, 1987). E ach of these systems, are thought to generate a dynamic state- proneness- which specifies the likelihood of involvement in problem behavior. Variables, within each of these systems, act as either controls against or instigations to involvement in problem behavior. Variables that control against problem behavior are synonymous with protective factors, while variables considered to be instigations to involvement in problem behavior are synonymous with risk factors. Within each system, it is the balance of instigations and controls that determines psychosocial proneness for involvement in problem behavior; and it is the balance of instigations and controls across the three systems that determines the adolescents overall level of problem behavior proneness-or psychosocial unconventionality (Jessor, 1987). Values, expectations, beliefs, attitudes, and orientations toward self and others, are the different variables within the personality system. When juveniles are lacking the controls ag ainst involvement in problem behavior within the personality system, they are said to have personality proneness. Variables such as lower self-esteem, lower value on academic achievement, and more external control, are found in those who have personality proneness to problem behaviors (Jessor, 1987). Problem-behavior theory has been expanded to include research that tests other factors that may strengthen the predictive process. In a recent study, several protective factors were analyzed independently in order to determine their effect on risk behaviors taking place in relation to this theory. Similar to conventional behaviors, protective factors are absent of risk and act opposite of risk factors or unconventional behaviors (Jessor, Van Den Bos, Vanderryn, Costa, Turbin, 1995). Through analyzing middle school children in this longitudinal study researchers concluded that protective factors had a strong effect on adolescent behavior over time and certain factors even influence gender and ethnicity more directly (Jessor, et al., 1995).   Resilience As investigators studied risk, they began realizing that there were children flourishing in the midst of adversity; this led to the study of resilience (Garmezy, 1974; Rutter, 1979; Werner, Smith, 1982; Masten, Coatsworth, 1998). In an effort to account for individual differences in outcome in which exposure to risk was essentially held constant, Garmezy (1985) began to articulate factors that may serve to be protective against risk. Garmezy (1985) used three categories to organize the protective variables: (a) dispositional attributes (individual differences), (b) family attributes, and (c) extrafamilial circumstances, while exploring protective factors as moderators of the relationship of risk to behavioral outcomes (Jessor et al., 1995). The Kauai Longitudinal Study is one of the most influential studies of individual resilience and protective factors in children. Following 698 children born in 1955, over a 40 year span, Werner and Smith explored the impact of a variety of biological and psychosocial risk factors, stressful life events, and protective factors on the development of a multiethnic cohort (Werner, Smith, 1992). Findings from this study demonstrated that both internal and external factors work together to strengthen resilience in children, as they moved toward adulthood. Characteristics of resilient children, during early childhood, were found to be predictive of resilience in later years. When these children progressed through middle childhood and adolescence, they were characterized by their impressive communication and problem-solving skills. Findings also suggested other salient protective factors that were operated in the lives of the resilient youth. These factors included an internal locus of cont rol, self-efficacy, and a positive self-concept (Werner, 1995). According to Werner, the development of human resiliency is none other than the process of healthy human development-a dynamic process in which personality and environmental influences interact in a reciprocal, transactional relationship. The range of outcomes is determined by the balance between risk factors, stressful life events, and protective factors (Werner, Smith, 1982). Developmental asset framework. Resilience research supports a developmental theory of change (Bowlby, 1969; Bronfenbrenner, 1979; Erikson, 1963; Rogoff, 2003). According to the Search Institute (2003) as children move through their developmental stages, they acquire a set of personal assets, which help them become resilient and face the challenges and opportunities ahead. Focus on prevention, protective factors, and resiliency, the framework of developmental assets foundations are rooted in empirical studies of child and adolescent development. The original configuration of 30 developmental assets was described in several publications (Benson, 1990; Benson, 1996; Benson, Espeland, Galbraith, 1994) as well as in data-based reports developed for each of 460 school districts. These reports were based on Search Institutes survey, Profiles of Student Life: Attitudes and Behaviors, designed to measure the developmental assets. In 1996, the model was expanded to 40 developmental assets; gr ouped into 20 external assets and 20 internal assets (Search Institute, 2003). These assets, both internal and external, have been associated with protection against deviant behaviors; the more assets youth report, the less likely they are to engage in risk behaviors (Benson, Scales, Leffert, Roehlkkepartain, 1999). The external assets refer to the positive developmental experiences of relationships and opportunities that adults provide and are grouped into four categories: (a) support, (b) empowerment, (c) boundaries and expectations, and (d) constructive use of time. The internal assets are competencies, skills, and self-perceptions that young people develop gradually over time. Benard (1991) suggested four categories of overlapping personal strengths, or internal assets, of resilient children, which include social competence, problem-solving, autonomy and identity, and a sense of purpose. Benson, Leffert, Scales and Blyth (1998) have placed the internal assets in four similar categories: (a) commitment to learning, (b) positive values, (c) social competenci es, and (d) positive identity. Regardless of terminology, each of these four categories of personal strengths encompasses many inter-related individual characteristics associated with healthy development and life success. Research has demonstrated a clear association between the internal factors and the external factors, and their relationship to the development of juvenile delinquency; however, little is known about the direct effect that these factors have on an individual, once criminal behavior has been initiated. Understanding how these factors contribute to desistance from crime, is of critical importance for sustained post-onset interventions (Kazemian, 2007). Providing individuals with the resources and the skills to maintain desistance efforts is needed for rehabilitation and reintegration. Kazemian (2007) highlights the importance of viewing desistance as a process that occurs within individuals. Focusing on within-individual change, allows monitoring progress, and is more valuable for guiding post-onset intervention strategies; differences in internal factors that promote desistance from crime, are easier to manipulate through individual intervention, than the external factors between those who persist and those who desist (Kazemian, 2007). Internal Assets as Protective Factors The ongoing, dynamic process of resilience, reiterates the need for a better understanding of the factors contributing to this process. What factors are likely to build resiliency? What factors seem to alter the predictions of negative outcome and enable individuals to circumvent conditions of great adversity and stress? Once the onset of delinquency or antisocial activity has occurred, the same dynamic processes must be considered in order to understand the internal and external factors that promote or inhibit desistance within individuals (Kazemian, 2007; Benard, 1998; Mulvey et al., 2004). Mulvey et al. (2004) conceptualize the desistance process as involving the interactions among dynamic changes in psychological states, developmental capacities, and social contexts; therefore, developmental changes occurring in late adolescence, or the time of desistance, must also be considered. Review of the literature surrounding desistance, suggests that the desistance is an ongoing process of change over time. Findings also suggest that the desistance process is developmentally based, and that dynamic psychological traits differentiate adolescents who continue to commit criminal offenses from those who desist (Mulvey et al., 2004; Decoene, Bijtteber, 2008; Loeber et al., 2007). Preliminary investigations of factors related to desistance from youth offending provide increasing evidence for the importance of internal assets as protective factors. Traditionally, researchers have placed youth offenders within a high-risk, nonresilient category (Ferguson, Lynskey, 1996; White, Moffitt, Silva, 1989). Moving away from the risk perspective, by emphasizing the strengths and assets of youth offenders, and looking at those adolescents who have desisted from delinquent involvement, researchers have begun to identify protective factors in resilient children. Carr and Vandiver (2001) applied the knowledge gleaned from resiliency research to the domain of juvenile delinquency. This study sought to identify the stressors, risk factors, and protective factors among a population of youth offenders, and to determine if these factors are associated with recidivism status. Findings suggested that protective factors play an important role in decreasing recidivism among youth o ffenders. Additionally, personal characteristics were found to independently differentiate the non-repeat offenders and repeat offenders (Carr, Vandiver, 2001). Similarly, in an examination of factors discriminating between recidivists and non-recidivists, self-esteem, self-efficacy, expectations of future success, and resilience were the personal attributes expected to be discriminators (Benda, 2001). Social Competence. The social competencies assets include a personal skill set needed to deal with the myriad choices, challenges, and opportunities presented in complex societies. Social competence is thought to develop with the social contexts and includes planning and decision making, interpersonal and cultural competence, resistance skills, and the ability to resolve conflicts (Benson, Leffert, Scales, Blyth, 1998). Social competence, according to Luthar, is considered to be a particularly useful indicator of childrens overall positive adaptation or wellness (Luthar, Burak, 2000, p. 30). Similarly, Kholberg, LaCrosse, and Ricks (1972), found social competence to be among the broad developmental-adaptational attributes, that were the best predictors of later adult outcomes. This category includes the characteristics, skills, and attitudes essential to forming relationships and positive attachments to others; such as empathy and caring, compassion, forgiveness, and communication. Studies on resiliency, not only document these attributes, studies done on individuals already experiencing problems with delinquency, crime, mental illness, and substance abuse have consistently identified the lack of these qualities. Deficits within social competence have been associated with a history of higher stress reactivity and lower self-control of attention and behavior (Masten, Coatsworth, 1998). Additionally, there is evidence that individuals with the poorest social competence have the worst prognoses and highest relapse rate, and childhood competence level is predictive of severity of adult psychiatric problems (Benard, 1998). Empathy has been defined as, an emotional reaction elicited by and congruent with anothers emotional state or situation (Hoffman, 1982). According to Eisenberg, Miller, Shell, McNalley, and Shea (1991), empathy begins being expressed in children during late elementary school and beyond; expressed through reasoning, which is reflective of abstract principles, internalized affective reactions, and self-reflective sympathy and perspective taking. Empathy, according to Hoffman (1984), is important for prosocial behavior, as it functions as a motive for moral behavior. Empathic children are more inclined to consider the implications of their actions for the welfare of others and to refrain from delinquent behaviors. As such, empathic capacities function as a deterrent against certain types of delinquent behaviors. Individuals with higher empathy scores, tend to be morally mature (Hogan, 1973). In fact, empathy has consistently been found to be positively associated with adolescents prosoc ial moral judgment and is a strong predictor of males prosocial behavior (Benard, 2004; Eisenberg et al., 1991). With age, moral judgment becomes a component of individuals prosocial disposition, or lack thereof. Understanding, and sensitivity to, others feelings, thoughts, and experiences, directly affects behavior as well as indirectly affecting moral cognitions. As the root of morality and mutual respect, empathy is considered a hallmark of resilience and is essential to healthy development. Problem-solving. Abilities such as planning, flexibility, critical thinking, and insight fall into the category of problem-solving. Several studies have found planful behavior to be the primary internal asset of individuals that helped them avoid choosing troubled mates. Studies have also demonstrated flexibility as a critical life skill; flexibility is one of the most often named personal resources, of adults asked what personal strength has helped them deal with stress and challenge (Benard, 2004). More effective problem-solving skills have been found in stress-resilient children and are strong indicators of adult adaptation and functioning (Luthar, Zigler, 1990; Werner, Smith, 1982, 1992, 2001). Problem-solving, according to Masten and Coatsworth (1998), requires skills useful for coping. In a study of offenders and non-offenders, Fougere, Daffern, and Thomas (2012) found those considered to be resilient, had stronger coping skills and better problem-solving skills. Findings also suggested that those considered to be resilient, were also more likely to be the non-reoffenders or succeeders. By the same token, offending behavior has been linked to cognitive predispositions, such as interpersonal cognitive problem-solving skills. Deficits in these skills have been associated with deficits in interactions with others (Kazemian, 2007). Furthermore, Tate, Reppucci, and Mulvey (1995), found chronically violent individuals to have constricted problem-solving skills. Autonomy and identity. The category of autonomy includes attributes revolving around the development of ones sense of self, identity, and of power; such as self-efficacy and self-awareness. Positive identity, according to Erik Eriksons (1968) theory of psychosocial development, is the critical developmental task of adolescence. Research has confirmed that a clear sense of identity is associated with optimal psychological functioning in terms of personal well-being and the absence of anxiety and depression. Positive self-identity is closely aligned with positive self-evaluation or self-esteem. These characteristics are not only critical to normative development but have consistently been documented as characteristics describing resilient children and adolescents (Masten, Coatsworth, 1998; Werner, Smith, 1992). Self-awareness. Self-awareness is a nonreactive, nonjudgmental attention to inner states (Goleman, 1995, p.47, 315). It includes observing ones thinking, feelings, attributions or explanatory style as well as paying attention to ones moods, strengths, and needs as they arise, without getting caught up in emotion. Self-aware individuals, according to Mead (1934), have the ability to look at themselves as others do. They can adopt an outside social perception of themselves. Self-awareness, as posited by Diener and Srull (1979), increases adherence to normative standards. Individuals, who are high in this asset, are more concerned with their social selves and are more likely to avoid anti-normative behavior. Studies of desistance indicate the importance of individual-level motivational traits in change toward positive behavior (Mulvey et al., 2004; Twyford, 2012). Mulvey et al. (2004) have suggested agency as a potentially relevant factor for promoting or inhibiting desistance. A sense of personal agency, is a pivotal role in cognitive development, and includes the first stage of self-awareness. A change in the way the individual sees him or her self, and who they believe they are, are important to the process of personal reformation and desistance (Mulvey et al., 2004). Self-awareness is considered a hallmark of successful and healthy human development; it is the fundamental internal asset upon which other assets are built (Werner, 1989; 1992). Self-efficacy. Self-efficacy has been defined as, ones belief in ones ability to succeed in specific situations. Ones sense of self-efficacy can play a major role in how one approaches goals, tasks, and challenges; affecting behavior through its impact on motivational, decisional, and affective determinants (Bandura, 1977; Caprara, Gerbino, Paciello, Di Giunta, Pastorelli, 2010). Research has demonstrated self-efficacy to be a critical component of developing ones identity and sense of self-the major developmental task of adolescent years (Benard, 2004). Self-efficacious children and adolescents have developed a sense of personal control. A sense of personal control is essential for individuals to surmount serious social and contextual adversities (Scales, Benson, Leffert, Blyth, 2000). When individuals have a sense of personal control, they are better able at recognizing what is out of their control and to understand that they are able to control the course of their lives, regardless of what cannot be controlled. Confidence in the personal control over their lives and their life choices, or a sense of personal agency, is crucial for adolescents to make any significant and lasting changes (Mulvey et al., 2004; Twyford, 2012). This may be, in part, because individuals with high self-efficacy beliefs are better at monitoring their behavior. According to Caprara et al., (2010) self-efficacious children may learn to cope and regulate temperamental and behavioral problems, by relying on cognitive and emotional resources. Studies have sho wn the positive influence that self-efficacy beliefs have on academic achievement and prosocial behavior and their positive role in counteracting antisocial careers. Self-efficacy is said to supply adolescents with the cognitive, emotional, and motivational resources to cope successfully with transition to adulthood (Caprara et al., 2010). Over the past few decades, researchers have begun to focus on both risk factors and protective factors; recognizing their interactive roles throughout youth development. Findings have demonstrated a clear association between the internal factors and the external factors, and their relationship to the development of juvenile delinquency; however, little is known about the direct effect that these factors have on an individual, once criminal behavior has been initiated. Therefore, as empathy, problem-solving, self-awareness, and self-efficacy have demonstrated to be a predictor of and a positive influence on prosocial behavior, these assets require further investigation to determine the extent to which they promote desistance and if they are indeed internal protective factors. Currently, research regarding the individual personal strengths, or internal assets, and their relation to youth offending patterns has been limited. The present study investigated the protective effects of the internal assets of empathy, problem-solving, self-awareness, and self-efficacy in a youth offender population. Specifically, the proposed study sought to explore these assets and their ability to differentiate between non-repeat and repeat youth offenders. It was predicted that youth offenders would have lower scores on the internal assets, than a normative sample. Furthermore, it was predicted that youth offenders with higher scores on the internal assets would be less likely to recidivate within a six-month period, than youth offenders with lower internal assets scores.

Benefits of Financial Liberalisation

Benefits of Financial Liberalisation A EUROPEAN POLICY ABSTRACT: This paper extends to test if the short and in the long run. Weak indica- the same short-run increase in cyclical tions are found that this may happen par- volatility arising from financial integration tially due to the anchoring of expectations is observed in this specific sample of â€Å"emerg-provided by the EU Accession, and to the ing markets. This work finds signs that, more robust institutional framework contrary to other emerging markets, this imposed by this process onto the countries in does not happen: for the future Member question. States, financial integration, similarly to the KEY WORDS: Enlargement, European outcome observed in mature market Union, financial liberalization, booms, 81 economies, reduces cyclical volatility both in busts, cycles, volatility. 1. INTRODUCTION Financial and capital flows liberalization can play a fundamental role in increasing growth and welfare. Typically, emerging or developing economies seek foreign savings to solve the inter-temporal savings-investment problem. On the other hand, current account surplus countries seek opportunities to invest their savings. To the extent that capital flows from surplus to deficit countries are well intermediated and, therefore, put to the most productive use, they increase welfare. Liberalization can, however, also be dangerous, as has been witnessed in many past and recent financial, currency and banking crises. It can make countries more vulnerable to exogenous shocks. In particular, if serious macroeconomic imbalances exist in a recipient country, and if the financial sector is weak, be it in terms of risk management, prudential regulation and supervision, large capital flows can easily lead to serious financial, banking or currency crises. A number of recent crises, like those in Ea st Asia, Mexico, Russia, Brazil and Turkey (described, for example, in IMF (2001)), and, to some extent, the Argentinean episode of late 2001, early 2002, have demonstrated the potential risks associated with financial and capital flows liberalization. Central and Eastern Europe has a somewhat different experience, when compared to other emerging regions, concerning the financial liberalization process, as the process there seems to have been much less crisis-prone than in, for instance, Asia or Latin America. This maybe, at least partially, because the current high degree of external and financial liberalization in the Central Eastern European countries (CEECs), beyond questions of economic allocative efficiency, must be understood in terms of the process of Accession to the European Union. The EU integration process implies legally binding, sweeping liberalization measures-not only capital account liberalization, but investment by EU firms in the domestic financial services, and the maintenance of a competitive domestic environment, giving this financial liberalization process strong external incentives (and constraints). Those measures were implemented parallel to the development of a highly sophisticated regulatory and supervis ory structure, again based on EU standards. This whole process happened also with the EUs technical and financial support, through specific programs-like the PHARE one, for these so-called Accession, and the TACIS, for the former Soviet Union ones- and direct assistance from EU institutions, like the European Commission, the European Parliament and the European Central Bank (also, on a very early stage of the transition process, the influence of the IMF in setting up policies and institutions in several countries in the region-an intervention widely considered to haven been successful-was important: see Hallerberg et al., 2002). Additionally, EU membership seems to act as an anchor to market expectations (see Vinhas de Souza and Hà ¶lscher, 2001), limiting the possibilities of self- fulfilling financial crises and regional contagion (see Linne, 1999), which had the observed devastating effects in both Asia and Latin America (even a major event, like the Russian collapse of 1998, had very reduced regional side effects). Several regional episodes of financial systems instability did happen (see Vinhas de Souza, 2002(a) and Vinhas de Souza, 2002(b)), but none with the prolonged negative consequences observed in other region (which was also due to the effective national policy actions undertaken after those episodes). This studys main aim is to expand the Kaminsky and Schmukler database (see Kaminsky and Schmukler, 2003), from now on indicated as KS, to include the Accession and Acceding Countries from Eastern Europe (namely, for Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania , Slovakia and Slovenia). In their original work, KS build an extensive database of external and financial liberalization, which includes both developed countries and countries from emerging regions (but not from Eastern Europe). With that, they create different indexes of liberalization (capital account, banking and stock markets: see Table I below) and using them individually and in an aggregate fashion, test for the effects and causality of this process on financial and real volatility, for the existence of differences between regions, and for the effects of the ordering of the liberalization process. One underlying hypotheses of this work is that the existing regulatory and institutional framework in Eastern Europe, plus a more sustainable set of macro policies, played an important role in enabling liberalization to largely deliver the welfare enhancing outcomes that it is supposed to. Such an â€Å"anchoring role of the European Union in the CEECs, through the process of EU membership, and through the effective imposition of international standards of financial supervision and regulation, may indicate that, beyond multilateral organizations like the IMF or the OECD, a greater, pro-active regional stabilizing role in emerging markets by regional actors, for instance, the United States, or by some regional sub-grouping, like Mercosur, may also be welfare enhancing for other â€Å"emerging regions. 2. CAPITAL ACCOUNT The achieving of capital account liberalization happened rather swiftly in most of the countries in our sample: by the mid 1990s, all bar Bulgaria and Romania had been declared Article VIII compliant (for those two countries, this happened in 1998: see Table II below). One of the main driving forces behind this was the process of European Integration, for which external liberalization is a pre-requisite: in the early to mid-1990s, all the countries had signed Association Agreements with the European Union (frequently preceded by trade liberalization agreements with the EU, also called â€Å"Europe trade agreements, usually with years given to the countries to prepare for their full implementation) and formally applied for EU membership. Another additional factor supporting liberalization was IMF and OECD membership: four of the larger countries in our sample became OECD members during the second half of the 1990s. Another factor to be considered, is the endogenous decision process to liberalize in a sustainable fashion. 3. BANKING SECTOR Financial integration, in the form of the opening up the banking sector to foreign banks, is seen as being positive, on a micro level, as foreign banks are usually better capitalized and more efficient than their domestic counterparts (of course, the domestic banking sector eventually catches-up: for an indication of this process at the ACs, see, among others, Tomova et al., 2003). Also from a macroeconomic perspective, financial integration maybe positive for the Eastern European countries, both for long run growth and, as there are indications that foreign banks do not contract either their credit supply nor their deposit base, in helping to smooth the cycle (see de Haas and Lelyveld, 2003: they find some indication that this is linked to the better capitalization base and prudential ratios, as better capitalized domestic banks behave similarly to foreign banks). Given the bank-centered nature of virtually all the financial systems of the future Member States, this is particularly important for them. In most of the member states, the initial stage of the creation of the two-tier banking system, modeled on the Western European â€Å"universal bank system, was characterized by rather liberal licensing practices and limited supervision policies (aimed at the fast creation of a de novo commercial, private banking sector: see Fleming et al., 1996, Balyozov, 1999, Enoch et al., 2002, Sà ¶rg et al., 2003). This caused a mushrooming of new banks in those countries in the early 1990s. Parallel to this, a series of banking crises, of varied proportions, affected most of those de novo banking systems, due to this lax institutional framework, inherited fragilities from the command economy period (the political need to support state-owned, inefficient industries, with the consequent accumulation of bad loans and also the financing of budget deficits), macroeconomic instability, risky expansion and investment strategies and also sheer inexperience, both from the investor s and from regulators. Progressively, the re-capitalization, privatization and internationalization of the banking system (mostly into the hands of EU financial conglomerates), coupled with the implementation of a more robust, EU-modeled institutional framework, did away with most of those problems. Two of the worst cases where the set of Baltic banking crises and the Bulgarian episode, which are described in more detail below. Other smaller banking crises happened in Estonia in 1994 and 1998, and in Latvia in 1994. Caprio and Klingebiel, 2003, report smaller episodes of â€Å"financial sector distress in the Czech Republic (94-95), Hungary (93), Poland (91-93), Romania (98-00), Slovakia (97) and Slovenia (92-94). The initial proliferation of banks was, quite naturally, followed by a process of consolidation and strengthening-parallel to the privatization of the remnant state-owned components of the financial system- of the banking sector in most of those economies (in Bulgaria, from 81 banks in 1992 to 35 in 2001, in the Czech Republic from 55 in 1995 to 38 in 2001, Estonia, from 42 in 1992 to 7 currently, while Hungary had 33 banks in 2002, showing only a very slight decrease from the early 1990s, Latvia from 56 in 1994 to 23, Lithuania from 27 in 1993 to 13, in Poland from 8 1 in 1995 to 71 in 2001, in Romania from 45 in 1998 to 41 in 2001, in Slovakia from 22 in 2000 to 19 in 2001, and in Slovenia, where the number fell from 25 to 21 during 2001 alone). This consolidation process was frequently led by foreign companies, which now hold the majority of the assets of the banking system in virtually all of them-contrary to the situation in the current EU Member States-bar Slovenia. This process now has a component of regional expansion of the Eastern European banks themselves, or, more precisely in most cases, the regional expansion of Western banks via some of their locally-owned subsidiaries (see Sà ¶rg et al., 2003, ibid). The share of banking assets to GDP, nevertheless, is still far below the Euro area average (which stood at around 265% of GDP by end 2001), compared with 47% in Bulgaria, 136% in the Czech Republic, 72% in Estonia and Latvia, 32% in Lithuania, 63% in Poland, 60% in Hungary, 30% in Romania, 96% in Slovakia and 94% in Slovenia (data also for 2001). Another peculiar feature of the banking system in the region is that foreign currency lending -usually euro-denominated-to residents is very high, especially in the Balti c republics: with 80% of total loans in Estonia, 56% in Latvia and 61% in Lithuania. Also, the Baltic countries have substantial shares of deposits by non-residents, with over 10% in Estonia and Lithuania and close to 5% in Latvia (Latvia, with its close trading ties to Russia, has a particular strategy of selling itself as a stable financial services center to CIS depositors: see IMF, 2003(b), ibid). The supervision system has also substantially improved, and, following recent international-and EU- best practice, is now centered in independent universal supervisory agencies in the most advanced of those countries (Reininger et al., 2002, ibid., estimate that the formal regulatory environment for the Czech Republic, Hungary and Poland is actually above the EU, and that its actual enforcement level is at its average;Liive, 2003, gives a description of the Estonian experience that culminated in the creation of the EFSA -Estonian Financial Supervisory Authority- in January 2002). 3.1 BANKING CRISES IN EASTERN EUROPE The Baltic bank crises were, to different degrees, linked to liquidity difficulties related tolerations with Russia (in the November 1992 Estonian case, by the freezing of assets held by some Estonian banks in their former Moscow headquarters, while the Latvian and Lithuanian episodes of, respectively, March and December 1995, were caused by the drying-up of lucrative trade-financing opportunities with Russia, whose export commodities, at that time, were still below world price levels) and regulatory tightening (Latvia, Lithuania), compounded by the elimination of credit opportunities with the implementation of the Estonian and Lithuanian CBAs (Currency Board Arrangements). In Lithuania, as in Bulgaria, the financing of the budget deficit also played a role. In the Estonian and Latvian cases, around 40% of the assets of the banking system where compromised, in the Lithuanian and Bulgarian cases, around a third. The Bulgarian 1996-1997 crisis eliminated a third of its banking sector, and led the country to hyperinflation (reaching over 2000% in March 1997, see Yotzov, 2002). Its roots lie in the political instability that preceded it (which, on its turn, led to inadequate real sector reform, with state-owned, loss making enterprises being financed via the budget deficit or through arrears with the, at the time, still mostly state-owned part banking sector: those arrears were, in turn, partially monetized by the Bulgarian National Bank -BNB- and the largest state bank, the State Savings Bank -SSB). Periodic foreign exchange crises (March 1994, February 1997) and bank runs (late1995, late 1996, early 1997) were part of this picture. The implementation of tighter supervisory procedures during 1996 (giving the BNB the power to close insolvent banks), and a tightening of policy actually led to more bank runs. A caretaker government in February 1997 (before a newly elected government took power in May) paved the way to longer lasting reform and the implementation of t he CBA, with its tighter budget constraints towards both the government and the banking sector. This reform process happened with the support from multilateral institutionsamely, (namely the IMF). 4. STOCK MARKETS The existence of stock markets is assumed to be beneficial for economic performance. In principle, it provides a way for companies to raise capital at lower costs than through simple banking intermediation, and because it is not as restricted a source of capital as internal financing. Also, it is assumed that the existence of alternative modes of finance may reduce the likelihood of credit crunches caused by problems with the banking sector (see Greenspan, 2000). Additionally, the existence of external ownership is (or was, given the recent problems with market-based governance in the US and the EU, and the shift towards a more regulated environment) assumed to provide better governance for the management of firms. The majority of economic analyses seem to support the position that a diversified financing mix is positive for economic growth and stability. As described in the previous section, all the financial sectors in the Member States are bank-centered, with stock markets playing marginal roles in most of them (and, in some, a very marginal role: in Bulgaria, Slovakia and Romania, their average market capitalization in GDP terms is below 5%: see Figure I below). All of these countries had (re-)established stock markets by the mid-90s (see Table III above). About half of the future Member States used them to drive the initial process of re-privatization, either via mass issues of voucher certificates for residents (the most famous case of this strategy was the Czech Republic), or via IPOs (Initial Public Offerings) re-privatization processes, to lock-in domestic and foreign strategic investors (see Claessens at al., 2000). In the voucher-driven privatization, the initial large number of investors and traded stocks in those stock markets was soon concentrated in a rather limited number of institutional investors-domestic and foreign- and â€Å"blue chip stocks. In the IPO-driven markets, the number of stocks and investors actually tended to increase with time, albeit from a rather concentrated base. Even in the largest ones, nevertheless, market capitalization, as a GDP share, was and remains rather low (see Figure I below), and far below the EU average (around 72% of GDP). Only in the Czech Republic, Estonia, Hungary and Slovenia the average market capitalization is above a 20% GDP share, while in Romania is below 1% in several years. Also, the average market turnover is equally below the one observed in comparable EU economies. Similarly to what is observed in the banking sector, the initial regulatory environment was deliberately lax, and the regulators were plagued by much the same problems of inexperience and limited number of staff and resources. This does not mean that domestic agents in those countries lack access to the financial services supposed to be provided by stock markets: the very process of opening up, the increase in cross-border trade in financial services, the harmonization of rules for capital trading with the EU (including the ongoing efforts of the Lamfalussy Committee towards a single European market for securities: according to the current proposal, small and medium size firms would be able to use a simplified prospectus valid throughout the EU and choose the country of its approval), plus the development of information technology, all imply that is not actually necessary-nor economically optimal, given economies of scale-for each individual country to have its own separate stock market. One must also recall that the current national stock markets in the mature developed economies are themselves the result of process of consolidation-and closing-of smaller regional stock markets (as was observed in Bulgari a in the early 1990s), which still today coexist with larger, dominant national stock exchanges even in some mature markets, like Germany and the US. Nevertheless, the observed tendency of domestic larger companies, with presumed better growth prospects, to list abroad (see Table IV below), due to the obvious cost and liquidity advantages of the larger international stock markets, does seems, on balance, to deprive those stock markets of liquidity (see Claessens at al., 2003). On the other hand, nonresidents seem to play a major role in most of those markets (accounting for 77% of the capitalization in Estonia, 70% in Hungary and half of the free-float capitalization in Lithuania). All the specific questions described above concerning the way those stock exchanges were founded and their later developments, plus their relative smallness and shallowness, affect the dynamics of their stock market indexes (SMI), and are clearly reflected by them (as one may see in Figure II, below). This, coupled with the rather limited duration of the series, may affect their adequacy as proxies of financial cycles. Source: Datastream, modified by the authors. The price indexes here were converted to US Dollars and re-based to a common reference period were they equal 100, May of 1998. The country codings are as described in the Annexes. 5. ESTIMATED INDEXES The construction of the index for this new sample of countries was the core of this work. A comprehensive effort was done to crosscheck the information collected from papers and publications with national sources. Below we present the estimated monthly index, for the period January 1990 to June 2003 (see Figure III). The base data for its construction was collected from IMF and EBRD publications, and then exhaustively verified both with national sources and with works written about the individual countries and the region. This is an index that falls with liberalization, where maximum liberalization equals one and minimum three (in this sense, one could actually see it as an index of financial repression). As an additional robustness check, the year-end value of the index here constructed was regressed on the combined EBRDs yearly indexes of banking sector reform and non-banking financial sector reform. The results from a panel regression with the index constructed here on the LHS and the EBRD index on the RHS yield a coefficient of .60, and correlations among the individual country- specific index series range from -0.91 to -0.35. As one may see from Figure III above, the process of integration and liberalization was almost continuous throughout the 1990s and early 2000s. The spikes in the â€Å"Full Liberalization Index in the early 1990s do not indicate reversals: the merely reflect the entry into the sample of the newly independent Baltic republics. As former members of the Soviet Union, they â€Å"enter the world as highly closed economies, but those countries introduced liberalization reforms almost immediately from the start. After this, a slight increasing trend, that does reflect a mild liberalization reversal, is observed, starting mid-1994 and lasting until early 1997, from when a continuous liberalization trend is observed. Noteworthy here is the fact that virtually none of the obvious candidates for a reversal of liberalization (the 1997 Asian Crisis, the collapse of the Czech monetary arrangement in 1997, the collapse of the Bulgarian monetary arrangement in 1996/97, the 1998 Russian Crisis, the 1999-2001 oil price shocks-as all those economies are highly dependent of imported energy sources) seems to have driven these mild liberalization reversals. Comparing the Full Index constructed here with the one constructed by KS, for similar time samples, one may observe that the ACs start substantially below the average level of other emerging markets- i.e., they are more liberalized, but both the â€Å"entry of the initially less liberalized former Soviet republics, plus continuous liberalization efforts in the emerging market KS set reverse this situation. A similar liberalization reversal trend in both the ACs and the merging market set is observed from early 1994, but it is actually slightly stronger on the ACs sample, until its reversal in 1996. By the end of our sample, the ACs are clearly below the final value for the emerging set in KSs sample. This sort of remarkably fast pattern of the ACs â€Å"leapfroging towards best international practice is also observed in several types of institutional frameworks, like, for instance, monetary policy institutions and instruments (see Vinhas de Souza and Hà ¶lscher, 2001): a process that virtually took decades for Western central banks was compressed in a half a dozen years in the Future Member States. Nevertheless, by the end of the sample, both emerging and ACs are still above the level of mature, developed economies. Analyzing the individual components of the index (see Figure V), one may see that, abstracting again from the initial spikes in the index, which are, as explained above, caused by the addition of new countries to the sample, the 1994/1997 reversal of liberalization was essentially driven by the Financial Sector liberal ization component. As will become clear with the country specific analysis below, this was related, in most cases, to-and here it must be stressed that those were rather limited reversals-to the banking crises that plagued several countries in our sample in the early to mid 1990s. Comparing now the individual components of the Full Index constructed here with the ones from KS, again for emerging and mature economies, it becomes clear that the reversals observed in Figure IV were driven by different sources in the emerging set (increase in capital account restrictions) and ACs set (financial sector): see Figure VI. All the indexes for mature economies are, again as one would expect, substantially lower. One could, in principle, aggregate the countries in our sample in three different groups: rapid liberalizers (the ones that followed a â€Å"big bang early approach, without major reversals: Bulgaria, Estonia, Latvia, Lithuania), consistent liberalizers (the ones that followed a more delayed path, but also without major roll backs: the Czech Republic, Hungary, Poland) and cautious liberalizers (the ones whose liberalization path was either openly inconsistent or downright mistrustful: Romania, Slovakia, Slovenia). 5.1 COUNTRY-BY-COUNTRY LIBERALIZATION PATH. In Bulgaria, virtually no sign of a liberalization reversal is observed, even during the substantial stress experienced by the country during the banks runs of 1996/97 and the ultimate collapse of the floating regime in 1997 (beyond ad hoc restrictive measures adopted by the banks themselves). As in most of the countries in my sample, the stock market is the last one to liberalize, but does so in a faster fashion. Nevertheless, this is in most cases a data quasi-artifact that arises from the later (re-)constitution of the stock exchange itself. In the Czech Republic, a limited reversal of the financial sector liberalization is observed from late1995 to late 1997, namely, via the imposition of limits on banks short-term open positions towards on-residents, as a way to limit the exposure of the financial sector to the inflows brought about by the hard peg and the potential gains with interest rate differentials. After the peg was replaced by the current float regime, this restriction i s duly removed. In Estonia, again, virtually no sign of a liberalization reversal is observed, even during the bank runs of the early 1990s, the unwinding of the 1997 bubble, nor during the 1998 Russian crisis. Again, the stock market is the last one to liberalize, but one more time, this arises from the later constitution of the stock exchange. In Hungary, also no signs of any liberalization reversal are observed. Hungary was an early reformer, introducing some liberalization measures already during the late 1980s, but the profile of its reform path is much more discounted through time, as compared, for instance, with the Baltic countries. In Latvia, a rather limited reversal of the financial sector liberalization is observed from mid 1996all the way to early 2003: resulting from the 1996 banking crisis, specific aggregate lending limits to regions (i.e., limits on exposure to non-OECD countries, bar the other Baltic republics) are imposed. In Lithuania, a limited reversal of the f inancial sector liberalization is observed from early 1998, also resulting from the experienced banking crisis: reserve requirements on deposits on foreign accounts by non-resident are introduced; In Poland, no signs of any liberalization reversal are observed. Similarly to Hungary, the profile of its reform path is much more discounted through time; In Romania, no signs of any liberalization reversal are observed, but the reform path is a decidedly slow and cautious one: at the end of the sample, it has the highest (i.e., less liberalized) score for the â€Å"Full Index of all countries in the sample: 1.60 (see Table V). In Slovakia, no signs of any liberalization reversal are observed. Here, the reform path is characterized by a broad stagnation since the Czechoslovak partition till 1998/1999, when, after a change in the political leadership, reforms are re-started, reaching after that levels similar to the other â€Å"Vise grad countries in a rather quick fashion. In Slovenia, one of the most consistently cautious Member States concerning the advantages of integration and liberalization, reversals are indeed observed in all three indexes, since early 1995in the capital account and financial sector components, and from early 1997 in the stock market one. Since early 1999, with the entry in effect of the EU Association Agreement, across-the-board further (re)liberalization measures have been introduced. 6. FINANCIAL CYCLES AND LIBERALIZATION The financial cycle coding which is used by KS defines cycles as a at least twelve month-long strictly downwards (upwards) movement, followed by a equally upwards (downwards) 12-month movement from the through (peak) of a stock market index, measured in USD, as they should reflect returns from the point of view of an international investor. As described in the stock market section of this work, one must be warned that there are specific factors in the countries in our sample that may affect the effectiveness of a stock market index as an adequate proxy of financial cycles, at least for the sample here considered. Beyond that, these series have a rather limited time extension (our sample covers the 01:1990-06:2003 period). Adapting KS criteria to the limited time dimension of our sample, we use a less stringent definition of â€Å"cycle, the same algorithm as above but with a 3-month window for the cycle (Edwards et al., 2003, use a 6-month window). With this we get 118 observations for all countries in our sample. Of these 118 cycles, 61 are upward, with an average of 7.51 months duration, and 57 are downward, with an average of 8.20 months of duration. 7. CONCLUSION The main aim of this paper was to extend the index developed by Kaminsky and Schmukler, 2003, for a specific sample of countries, namely, the previously centrally planned economies from Central and Eastern Europe, and to perform a similar analysis on them. Our results do lend some support to the basic assumption of this study: in spite of all the limitations of the time series used (their shortness, the fact that they were buffeted by several country-specific and common shocks), a re-estimation of KSs core regressions strongly supports the notion that financial liberalization does generate benefits both in the short and in the long run, measured via the extension of the amplitude of upward cycles and its reduction for downward cycles of stock market indexes. Importantly, these results diverge from KS, as in their work â€Å"emerging markets experience a relative short run increase in the amplitude of downward cycles. Another noteworthy feature is that only minor liberalization rever sals, led by the financial sector component, were observed in the aggregate index. Also, those reversals do not seem to be driven by â€Å"contagion from shocks in other emerging markets (like the Asian or Russian crisis), but reflect country-specific shocks. When considering the individual components of the index separately, again signs of minor reversals in financial sector liberalization are observed, related to temporary reactions to the several banking crisis observed in the region. Concerning the importance of institutions and of the EU Accession, this papers initial assumption was that the mostly positive results above would come about due to the anchoring of expectation provided by the perspective of entry into the EU already by mid-2004 (or 2007, in the case of Bulgaria and Romania) for the countries here analyzed, and by the imposition of a more robust macro and institutional framework by the requirements of the Accession process itself. Signs of this are not found in the KS regressions, perhaps because the liberalization index itself captures the effects of the EU Accession process. Finally, using a different framework than KSs to assess the affects of liberalization on financial, real and nominal volatility, most of the econometric results seem to support the previous ones, but they seem to indicate that the capital account liberalization is the element that most consistently and significantly reduces volatility. On this final section, the majority the econometric results seem to support some specific role for the EU Enlargement process in reducing volatility. Benefits of Financial Liberalisation Benefits of Financial Liberalisation A EUROPEAN POLICY ABSTRACT: This paper extends to test if the short and in the long run. Weak indica- the same short-run increase in cyclical tions are found that this may happen par- volatility arising from financial integration tially due to the anchoring of expectations is observed in this specific sample of â€Å"emerg-provided by the EU Accession, and to the ing markets. This work finds signs that, more robust institutional framework contrary to other emerging markets, this imposed by this process onto the countries in does not happen: for the future Member question. States, financial integration, similarly to the KEY WORDS: Enlargement, European outcome observed in mature market Union, financial liberalization, booms, 81 economies, reduces cyclical volatility both in busts, cycles, volatility. 1. INTRODUCTION Financial and capital flows liberalization can play a fundamental role in increasing growth and welfare. Typically, emerging or developing economies seek foreign savings to solve the inter-temporal savings-investment problem. On the other hand, current account surplus countries seek opportunities to invest their savings. To the extent that capital flows from surplus to deficit countries are well intermediated and, therefore, put to the most productive use, they increase welfare. Liberalization can, however, also be dangerous, as has been witnessed in many past and recent financial, currency and banking crises. It can make countries more vulnerable to exogenous shocks. In particular, if serious macroeconomic imbalances exist in a recipient country, and if the financial sector is weak, be it in terms of risk management, prudential regulation and supervision, large capital flows can easily lead to serious financial, banking or currency crises. A number of recent crises, like those in Ea st Asia, Mexico, Russia, Brazil and Turkey (described, for example, in IMF (2001)), and, to some extent, the Argentinean episode of late 2001, early 2002, have demonstrated the potential risks associated with financial and capital flows liberalization. Central and Eastern Europe has a somewhat different experience, when compared to other emerging regions, concerning the financial liberalization process, as the process there seems to have been much less crisis-prone than in, for instance, Asia or Latin America. This maybe, at least partially, because the current high degree of external and financial liberalization in the Central Eastern European countries (CEECs), beyond questions of economic allocative efficiency, must be understood in terms of the process of Accession to the European Union. The EU integration process implies legally binding, sweeping liberalization measures-not only capital account liberalization, but investment by EU firms in the domestic financial services, and the maintenance of a competitive domestic environment, giving this financial liberalization process strong external incentives (and constraints). Those measures were implemented parallel to the development of a highly sophisticated regulatory and supervis ory structure, again based on EU standards. This whole process happened also with the EUs technical and financial support, through specific programs-like the PHARE one, for these so-called Accession, and the TACIS, for the former Soviet Union ones- and direct assistance from EU institutions, like the European Commission, the European Parliament and the European Central Bank (also, on a very early stage of the transition process, the influence of the IMF in setting up policies and institutions in several countries in the region-an intervention widely considered to haven been successful-was important: see Hallerberg et al., 2002). Additionally, EU membership seems to act as an anchor to market expectations (see Vinhas de Souza and Hà ¶lscher, 2001), limiting the possibilities of self- fulfilling financial crises and regional contagion (see Linne, 1999), which had the observed devastating effects in both Asia and Latin America (even a major event, like the Russian collapse of 1998, had very reduced regional side effects). Several regional episodes of financial systems instability did happen (see Vinhas de Souza, 2002(a) and Vinhas de Souza, 2002(b)), but none with the prolonged negative consequences observed in other region (which was also due to the effective national policy actions undertaken after those episodes). This studys main aim is to expand the Kaminsky and Schmukler database (see Kaminsky and Schmukler, 2003), from now on indicated as KS, to include the Accession and Acceding Countries from Eastern Europe (namely, for Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania , Slovakia and Slovenia). In their original work, KS build an extensive database of external and financial liberalization, which includes both developed countries and countries from emerging regions (but not from Eastern Europe). With that, they create different indexes of liberalization (capital account, banking and stock markets: see Table I below) and using them individually and in an aggregate fashion, test for the effects and causality of this process on financial and real volatility, for the existence of differences between regions, and for the effects of the ordering of the liberalization process. One underlying hypotheses of this work is that the existing regulatory and institutional framework in Eastern Europe, plus a more sustainable set of macro policies, played an important role in enabling liberalization to largely deliver the welfare enhancing outcomes that it is supposed to. Such an â€Å"anchoring role of the European Union in the CEECs, through the process of EU membership, and through the effective imposition of international standards of financial supervision and regulation, may indicate that, beyond multilateral organizations like the IMF or the OECD, a greater, pro-active regional stabilizing role in emerging markets by regional actors, for instance, the United States, or by some regional sub-grouping, like Mercosur, may also be welfare enhancing for other â€Å"emerging regions. 2. CAPITAL ACCOUNT The achieving of capital account liberalization happened rather swiftly in most of the countries in our sample: by the mid 1990s, all bar Bulgaria and Romania had been declared Article VIII compliant (for those two countries, this happened in 1998: see Table II below). One of the main driving forces behind this was the process of European Integration, for which external liberalization is a pre-requisite: in the early to mid-1990s, all the countries had signed Association Agreements with the European Union (frequently preceded by trade liberalization agreements with the EU, also called â€Å"Europe trade agreements, usually with years given to the countries to prepare for their full implementation) and formally applied for EU membership. Another additional factor supporting liberalization was IMF and OECD membership: four of the larger countries in our sample became OECD members during the second half of the 1990s. Another factor to be considered, is the endogenous decision process to liberalize in a sustainable fashion. 3. BANKING SECTOR Financial integration, in the form of the opening up the banking sector to foreign banks, is seen as being positive, on a micro level, as foreign banks are usually better capitalized and more efficient than their domestic counterparts (of course, the domestic banking sector eventually catches-up: for an indication of this process at the ACs, see, among others, Tomova et al., 2003). Also from a macroeconomic perspective, financial integration maybe positive for the Eastern European countries, both for long run growth and, as there are indications that foreign banks do not contract either their credit supply nor their deposit base, in helping to smooth the cycle (see de Haas and Lelyveld, 2003: they find some indication that this is linked to the better capitalization base and prudential ratios, as better capitalized domestic banks behave similarly to foreign banks). Given the bank-centered nature of virtually all the financial systems of the future Member States, this is particularly important for them. In most of the member states, the initial stage of the creation of the two-tier banking system, modeled on the Western European â€Å"universal bank system, was characterized by rather liberal licensing practices and limited supervision policies (aimed at the fast creation of a de novo commercial, private banking sector: see Fleming et al., 1996, Balyozov, 1999, Enoch et al., 2002, Sà ¶rg et al., 2003). This caused a mushrooming of new banks in those countries in the early 1990s. Parallel to this, a series of banking crises, of varied proportions, affected most of those de novo banking systems, due to this lax institutional framework, inherited fragilities from the command economy period (the political need to support state-owned, inefficient industries, with the consequent accumulation of bad loans and also the financing of budget deficits), macroeconomic instability, risky expansion and investment strategies and also sheer inexperience, both from the investor s and from regulators. Progressively, the re-capitalization, privatization and internationalization of the banking system (mostly into the hands of EU financial conglomerates), coupled with the implementation of a more robust, EU-modeled institutional framework, did away with most of those problems. Two of the worst cases where the set of Baltic banking crises and the Bulgarian episode, which are described in more detail below. Other smaller banking crises happened in Estonia in 1994 and 1998, and in Latvia in 1994. Caprio and Klingebiel, 2003, report smaller episodes of â€Å"financial sector distress in the Czech Republic (94-95), Hungary (93), Poland (91-93), Romania (98-00), Slovakia (97) and Slovenia (92-94). The initial proliferation of banks was, quite naturally, followed by a process of consolidation and strengthening-parallel to the privatization of the remnant state-owned components of the financial system- of the banking sector in most of those economies (in Bulgaria, from 81 banks in 1992 to 35 in 2001, in the Czech Republic from 55 in 1995 to 38 in 2001, Estonia, from 42 in 1992 to 7 currently, while Hungary had 33 banks in 2002, showing only a very slight decrease from the early 1990s, Latvia from 56 in 1994 to 23, Lithuania from 27 in 1993 to 13, in Poland from 8 1 in 1995 to 71 in 2001, in Romania from 45 in 1998 to 41 in 2001, in Slovakia from 22 in 2000 to 19 in 2001, and in Slovenia, where the number fell from 25 to 21 during 2001 alone). This consolidation process was frequently led by foreign companies, which now hold the majority of the assets of the banking system in virtually all of them-contrary to the situation in the current EU Member States-bar Slovenia. This process now has a component of regional expansion of the Eastern European banks themselves, or, more precisely in most cases, the regional expansion of Western banks via some of their locally-owned subsidiaries (see Sà ¶rg et al., 2003, ibid). The share of banking assets to GDP, nevertheless, is still far below the Euro area average (which stood at around 265% of GDP by end 2001), compared with 47% in Bulgaria, 136% in the Czech Republic, 72% in Estonia and Latvia, 32% in Lithuania, 63% in Poland, 60% in Hungary, 30% in Romania, 96% in Slovakia and 94% in Slovenia (data also for 2001). Another peculiar feature of the banking system in the region is that foreign currency lending -usually euro-denominated-to residents is very high, especially in the Balti c republics: with 80% of total loans in Estonia, 56% in Latvia and 61% in Lithuania. Also, the Baltic countries have substantial shares of deposits by non-residents, with over 10% in Estonia and Lithuania and close to 5% in Latvia (Latvia, with its close trading ties to Russia, has a particular strategy of selling itself as a stable financial services center to CIS depositors: see IMF, 2003(b), ibid). The supervision system has also substantially improved, and, following recent international-and EU- best practice, is now centered in independent universal supervisory agencies in the most advanced of those countries (Reininger et al., 2002, ibid., estimate that the formal regulatory environment for the Czech Republic, Hungary and Poland is actually above the EU, and that its actual enforcement level is at its average;Liive, 2003, gives a description of the Estonian experience that culminated in the creation of the EFSA -Estonian Financial Supervisory Authority- in January 2002). 3.1 BANKING CRISES IN EASTERN EUROPE The Baltic bank crises were, to different degrees, linked to liquidity difficulties related tolerations with Russia (in the November 1992 Estonian case, by the freezing of assets held by some Estonian banks in their former Moscow headquarters, while the Latvian and Lithuanian episodes of, respectively, March and December 1995, were caused by the drying-up of lucrative trade-financing opportunities with Russia, whose export commodities, at that time, were still below world price levels) and regulatory tightening (Latvia, Lithuania), compounded by the elimination of credit opportunities with the implementation of the Estonian and Lithuanian CBAs (Currency Board Arrangements). In Lithuania, as in Bulgaria, the financing of the budget deficit also played a role. In the Estonian and Latvian cases, around 40% of the assets of the banking system where compromised, in the Lithuanian and Bulgarian cases, around a third. The Bulgarian 1996-1997 crisis eliminated a third of its banking sector, and led the country to hyperinflation (reaching over 2000% in March 1997, see Yotzov, 2002). Its roots lie in the political instability that preceded it (which, on its turn, led to inadequate real sector reform, with state-owned, loss making enterprises being financed via the budget deficit or through arrears with the, at the time, still mostly state-owned part banking sector: those arrears were, in turn, partially monetized by the Bulgarian National Bank -BNB- and the largest state bank, the State Savings Bank -SSB). Periodic foreign exchange crises (March 1994, February 1997) and bank runs (late1995, late 1996, early 1997) were part of this picture. The implementation of tighter supervisory procedures during 1996 (giving the BNB the power to close insolvent banks), and a tightening of policy actually led to more bank runs. A caretaker government in February 1997 (before a newly elected government took power in May) paved the way to longer lasting reform and the implementation of t he CBA, with its tighter budget constraints towards both the government and the banking sector. This reform process happened with the support from multilateral institutionsamely, (namely the IMF). 4. STOCK MARKETS The existence of stock markets is assumed to be beneficial for economic performance. In principle, it provides a way for companies to raise capital at lower costs than through simple banking intermediation, and because it is not as restricted a source of capital as internal financing. Also, it is assumed that the existence of alternative modes of finance may reduce the likelihood of credit crunches caused by problems with the banking sector (see Greenspan, 2000). Additionally, the existence of external ownership is (or was, given the recent problems with market-based governance in the US and the EU, and the shift towards a more regulated environment) assumed to provide better governance for the management of firms. The majority of economic analyses seem to support the position that a diversified financing mix is positive for economic growth and stability. As described in the previous section, all the financial sectors in the Member States are bank-centered, with stock markets playing marginal roles in most of them (and, in some, a very marginal role: in Bulgaria, Slovakia and Romania, their average market capitalization in GDP terms is below 5%: see Figure I below). All of these countries had (re-)established stock markets by the mid-90s (see Table III above). About half of the future Member States used them to drive the initial process of re-privatization, either via mass issues of voucher certificates for residents (the most famous case of this strategy was the Czech Republic), or via IPOs (Initial Public Offerings) re-privatization processes, to lock-in domestic and foreign strategic investors (see Claessens at al., 2000). In the voucher-driven privatization, the initial large number of investors and traded stocks in those stock markets was soon concentrated in a rather limited number of institutional investors-domestic and foreign- and â€Å"blue chip stocks. In the IPO-driven markets, the number of stocks and investors actually tended to increase with time, albeit from a rather concentrated base. Even in the largest ones, nevertheless, market capitalization, as a GDP share, was and remains rather low (see Figure I below), and far below the EU average (around 72% of GDP). Only in the Czech Republic, Estonia, Hungary and Slovenia the average market capitalization is above a 20% GDP share, while in Romania is below 1% in several years. Also, the average market turnover is equally below the one observed in comparable EU economies. Similarly to what is observed in the banking sector, the initial regulatory environment was deliberately lax, and the regulators were plagued by much the same problems of inexperience and limited number of staff and resources. This does not mean that domestic agents in those countries lack access to the financial services supposed to be provided by stock markets: the very process of opening up, the increase in cross-border trade in financial services, the harmonization of rules for capital trading with the EU (including the ongoing efforts of the Lamfalussy Committee towards a single European market for securities: according to the current proposal, small and medium size firms would be able to use a simplified prospectus valid throughout the EU and choose the country of its approval), plus the development of information technology, all imply that is not actually necessary-nor economically optimal, given economies of scale-for each individual country to have its own separate stock market. One must also recall that the current national stock markets in the mature developed economies are themselves the result of process of consolidation-and closing-of smaller regional stock markets (as was observed in Bulgari a in the early 1990s), which still today coexist with larger, dominant national stock exchanges even in some mature markets, like Germany and the US. Nevertheless, the observed tendency of domestic larger companies, with presumed better growth prospects, to list abroad (see Table IV below), due to the obvious cost and liquidity advantages of the larger international stock markets, does seems, on balance, to deprive those stock markets of liquidity (see Claessens at al., 2003). On the other hand, nonresidents seem to play a major role in most of those markets (accounting for 77% of the capitalization in Estonia, 70% in Hungary and half of the free-float capitalization in Lithuania). All the specific questions described above concerning the way those stock exchanges were founded and their later developments, plus their relative smallness and shallowness, affect the dynamics of their stock market indexes (SMI), and are clearly reflected by them (as one may see in Figure II, below). This, coupled with the rather limited duration of the series, may affect their adequacy as proxies of financial cycles. Source: Datastream, modified by the authors. The price indexes here were converted to US Dollars and re-based to a common reference period were they equal 100, May of 1998. The country codings are as described in the Annexes. 5. ESTIMATED INDEXES The construction of the index for this new sample of countries was the core of this work. A comprehensive effort was done to crosscheck the information collected from papers and publications with national sources. Below we present the estimated monthly index, for the period January 1990 to June 2003 (see Figure III). The base data for its construction was collected from IMF and EBRD publications, and then exhaustively verified both with national sources and with works written about the individual countries and the region. This is an index that falls with liberalization, where maximum liberalization equals one and minimum three (in this sense, one could actually see it as an index of financial repression). As an additional robustness check, the year-end value of the index here constructed was regressed on the combined EBRDs yearly indexes of banking sector reform and non-banking financial sector reform. The results from a panel regression with the index constructed here on the LHS and the EBRD index on the RHS yield a coefficient of .60, and correlations among the individual country- specific index series range from -0.91 to -0.35. As one may see from Figure III above, the process of integration and liberalization was almost continuous throughout the 1990s and early 2000s. The spikes in the â€Å"Full Liberalization Index in the early 1990s do not indicate reversals: the merely reflect the entry into the sample of the newly independent Baltic republics. As former members of the Soviet Union, they â€Å"enter the world as highly closed economies, but those countries introduced liberalization reforms almost immediately from the start. After this, a slight increasing trend, that does reflect a mild liberalization reversal, is observed, starting mid-1994 and lasting until early 1997, from when a continuous liberalization trend is observed. Noteworthy here is the fact that virtually none of the obvious candidates for a reversal of liberalization (the 1997 Asian Crisis, the collapse of the Czech monetary arrangement in 1997, the collapse of the Bulgarian monetary arrangement in 1996/97, the 1998 Russian Crisis, the 1999-2001 oil price shocks-as all those economies are highly dependent of imported energy sources) seems to have driven these mild liberalization reversals. Comparing the Full Index constructed here with the one constructed by KS, for similar time samples, one may observe that the ACs start substantially below the average level of other emerging markets- i.e., they are more liberalized, but both the â€Å"entry of the initially less liberalized former Soviet republics, plus continuous liberalization efforts in the emerging market KS set reverse this situation. A similar liberalization reversal trend in both the ACs and the merging market set is observed from early 1994, but it is actually slightly stronger on the ACs sample, until its reversal in 1996. By the end of our sample, the ACs are clearly below the final value for the emerging set in KSs sample. This sort of remarkably fast pattern of the ACs â€Å"leapfroging towards best international practice is also observed in several types of institutional frameworks, like, for instance, monetary policy institutions and instruments (see Vinhas de Souza and Hà ¶lscher, 2001): a process that virtually took decades for Western central banks was compressed in a half a dozen years in the Future Member States. Nevertheless, by the end of the sample, both emerging and ACs are still above the level of mature, developed economies. Analyzing the individual components of the index (see Figure V), one may see that, abstracting again from the initial spikes in the index, which are, as explained above, caused by the addition of new countries to the sample, the 1994/1997 reversal of liberalization was essentially driven by the Financial Sector liberal ization component. As will become clear with the country specific analysis below, this was related, in most cases, to-and here it must be stressed that those were rather limited reversals-to the banking crises that plagued several countries in our sample in the early to mid 1990s. Comparing now the individual components of the Full Index constructed here with the ones from KS, again for emerging and mature economies, it becomes clear that the reversals observed in Figure IV were driven by different sources in the emerging set (increase in capital account restrictions) and ACs set (financial sector): see Figure VI. All the indexes for mature economies are, again as one would expect, substantially lower. One could, in principle, aggregate the countries in our sample in three different groups: rapid liberalizers (the ones that followed a â€Å"big bang early approach, without major reversals: Bulgaria, Estonia, Latvia, Lithuania), consistent liberalizers (the ones that followed a more delayed path, but also without major roll backs: the Czech Republic, Hungary, Poland) and cautious liberalizers (the ones whose liberalization path was either openly inconsistent or downright mistrustful: Romania, Slovakia, Slovenia). 5.1 COUNTRY-BY-COUNTRY LIBERALIZATION PATH. In Bulgaria, virtually no sign of a liberalization reversal is observed, even during the substantial stress experienced by the country during the banks runs of 1996/97 and the ultimate collapse of the floating regime in 1997 (beyond ad hoc restrictive measures adopted by the banks themselves). As in most of the countries in my sample, the stock market is the last one to liberalize, but does so in a faster fashion. Nevertheless, this is in most cases a data quasi-artifact that arises from the later (re-)constitution of the stock exchange itself. In the Czech Republic, a limited reversal of the financial sector liberalization is observed from late1995 to late 1997, namely, via the imposition of limits on banks short-term open positions towards on-residents, as a way to limit the exposure of the financial sector to the inflows brought about by the hard peg and the potential gains with interest rate differentials. After the peg was replaced by the current float regime, this restriction i s duly removed. In Estonia, again, virtually no sign of a liberalization reversal is observed, even during the bank runs of the early 1990s, the unwinding of the 1997 bubble, nor during the 1998 Russian crisis. Again, the stock market is the last one to liberalize, but one more time, this arises from the later constitution of the stock exchange. In Hungary, also no signs of any liberalization reversal are observed. Hungary was an early reformer, introducing some liberalization measures already during the late 1980s, but the profile of its reform path is much more discounted through time, as compared, for instance, with the Baltic countries. In Latvia, a rather limited reversal of the financial sector liberalization is observed from mid 1996all the way to early 2003: resulting from the 1996 banking crisis, specific aggregate lending limits to regions (i.e., limits on exposure to non-OECD countries, bar the other Baltic republics) are imposed. In Lithuania, a limited reversal of the f inancial sector liberalization is observed from early 1998, also resulting from the experienced banking crisis: reserve requirements on deposits on foreign accounts by non-resident are introduced; In Poland, no signs of any liberalization reversal are observed. Similarly to Hungary, the profile of its reform path is much more discounted through time; In Romania, no signs of any liberalization reversal are observed, but the reform path is a decidedly slow and cautious one: at the end of the sample, it has the highest (i.e., less liberalized) score for the â€Å"Full Index of all countries in the sample: 1.60 (see Table V). In Slovakia, no signs of any liberalization reversal are observed. Here, the reform path is characterized by a broad stagnation since the Czechoslovak partition till 1998/1999, when, after a change in the political leadership, reforms are re-started, reaching after that levels similar to the other â€Å"Vise grad countries in a rather quick fashion. In Slovenia, one of the most consistently cautious Member States concerning the advantages of integration and liberalization, reversals are indeed observed in all three indexes, since early 1995in the capital account and financial sector components, and from early 1997 in the stock market one. Since early 1999, with the entry in effect of the EU Association Agreement, across-the-board further (re)liberalization measures have been introduced. 6. FINANCIAL CYCLES AND LIBERALIZATION The financial cycle coding which is used by KS defines cycles as a at least twelve month-long strictly downwards (upwards) movement, followed by a equally upwards (downwards) 12-month movement from the through (peak) of a stock market index, measured in USD, as they should reflect returns from the point of view of an international investor. As described in the stock market section of this work, one must be warned that there are specific factors in the countries in our sample that may affect the effectiveness of a stock market index as an adequate proxy of financial cycles, at least for the sample here considered. Beyond that, these series have a rather limited time extension (our sample covers the 01:1990-06:2003 period). Adapting KS criteria to the limited time dimension of our sample, we use a less stringent definition of â€Å"cycle, the same algorithm as above but with a 3-month window for the cycle (Edwards et al., 2003, use a 6-month window). With this we get 118 observations for all countries in our sample. Of these 118 cycles, 61 are upward, with an average of 7.51 months duration, and 57 are downward, with an average of 8.20 months of duration. 7. CONCLUSION The main aim of this paper was to extend the index developed by Kaminsky and Schmukler, 2003, for a specific sample of countries, namely, the previously centrally planned economies from Central and Eastern Europe, and to perform a similar analysis on them. Our results do lend some support to the basic assumption of this study: in spite of all the limitations of the time series used (their shortness, the fact that they were buffeted by several country-specific and common shocks), a re-estimation of KSs core regressions strongly supports the notion that financial liberalization does generate benefits both in the short and in the long run, measured via the extension of the amplitude of upward cycles and its reduction for downward cycles of stock market indexes. Importantly, these results diverge from KS, as in their work â€Å"emerging markets experience a relative short run increase in the amplitude of downward cycles. Another noteworthy feature is that only minor liberalization rever sals, led by the financial sector component, were observed in the aggregate index. Also, those reversals do not seem to be driven by â€Å"contagion from shocks in other emerging markets (like the Asian or Russian crisis), but reflect country-specific shocks. When considering the individual components of the index separately, again signs of minor reversals in financial sector liberalization are observed, related to temporary reactions to the several banking crisis observed in the region. Concerning the importance of institutions and of the EU Accession, this papers initial assumption was that the mostly positive results above would come about due to the anchoring of expectation provided by the perspective of entry into the EU already by mid-2004 (or 2007, in the case of Bulgaria and Romania) for the countries here analyzed, and by the imposition of a more robust macro and institutional framework by the requirements of the Accession process itself. Signs of this are not found in the KS regressions, perhaps because the liberalization index itself captures the effects of the EU Accession process. Finally, using a different framework than KSs to assess the affects of liberalization on financial, real and nominal volatility, most of the econometric results seem to support the previous ones, but they seem to indicate that the capital account liberalization is the element that most consistently and significantly reduces volatility. On this final section, the majority the econometric results seem to support some specific role for the EU Enlargement process in reducing volatility.