In This Article Expand or collapse the "in this article" section Politics of Financial Crises

  • Introduction
  • General Overviews
  • Reference Works
  • Textbooks
  • Anthologies
  • Bibliographies
  • Journals
  • The Politics of Crisis Prevention
  • The Political and Institutional Consequences of Financial Crises
  • The Implication of Financial Crises on Global Governance
  • Repeated Financial Crises Prompt Fundamental Questions about Capitalism

Political Science Politics of Financial Crises
Jikon Lai
  • LAST REVIEWED: 30 August 2016
  • LAST MODIFIED: 30 August 2016
  • DOI: 10.1093/obo/9780199756223-0182


The global financial crisis of 2008–2009, with its epicenter in the United States and the United Kingdom, is the latest in a series of financial crises that have plagued the modern global economy since the early 1980s, when a number of Latin American countries encountered difficulties in repaying their sovereign debt. The proliferation of financial crises, especially since the late 1990s, has attracted increasing scholarly and general interest in the nature and impact of these socioeconomically significant events. What causes financial crises? How do financial sector regulators and policymakers react to crises? Why do they choose their specific responses? What are the impacts and consequences of financial crises, and of specific policy responses? What steps, if any, were taken to prevent or mitigate the likelihood of a crisis? While the answers to some of these questions can be found in economic and technical explanations, political economists, of both the domestic and the international variants, have long demonstrated that economic phenomena and the behavior of economic actors also have political foundations. Political scientists have broadly adopted three main approaches to uncover the politics of finance and financial crises: by focusing on the material motivations of key actors; by analyzing the institutional contexts that shape individual behavior; and by uncovering the shared ideas, norms, and practices that consciously and unconsciously guide individual behavior. While political scientists have in the past tended to focus on the behavior of government actors and international organizations, interest is now growing in studying the role of nonstate actors, such as credit rating agencies, private actors in the financial industry, and also those in civil society. Although most researchers adopt an arguably artificial analytical divide between the domestic versus the international space, the financial crises of recent years have revealed that domestic and international factors are tightly linked, thus challenging scholars to integrate these factors in their analyses in a more systematic and rigorous manner.

General Overviews

Lest readers fall under the false impression that we live in a particularly crisis-ridden era, Reinhart and Rogoff 2009 marshals an impressive array of quantitative data to demonstrate that financial crises have been a constant feature of the world economy throughout its long history. Kindleberger 2015 also offers us a historical appreciation of financial crises but one that adopts a more qualitative approach, in contrast to the quantitative approach of Reinhart and Rogoff 2009. Both Bryant 2003 and Eichengreen 2003 offer accessible introductions to the nature of financial systems and discuss their susceptibility to financial crises. They complement each other in that Bryant 2003 discusses the nature of domestic financial systems, whereas Eichengreen 2003 points to issues within the international monetary and currency system.

  • Bryant, Ralph C. Turbulent Waters: Cross-Border Finance and International Governance. Washington, DC: Brookings Institution, 2003.

    Bryant provides an accessible and systematic introduction to the nature of domestic and international financial markets. Since crises are the result of market failures in financial markets, he emphasizes the critical role of good financial governance at both the domestic and the international levels.

  • Eichengreen, Barry J. Capital Flows and Crises. Cambridge, MA: MIT, 2003.

    A multifaceted empirical, theoretical, and comparative consideration of past financial crises, with a focus on capital account liberalization, capital flows, and currency crises. The author pays attention to not just economic and financial preconditions for financial crises, but also institutional ones.

  • Kindleberger, Charles P. Manias, Panics, and Crashes: A History of Financial Crises. 7th ed. New York: Palgrave Macmillan, 2015.

    Another dig into the history of financial crises but one that adopts a more qualitative approach in contrast to the quantitative approach in Reinhart and Rogoff 2009. First published in 1978, this classic book is now in its seventh edition, with updates from the fifth edition onward made by Robert Aliber.

  • Reinhart, Carmen M., and Kenneth S. Rogoff. This Time Is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press, 2009.

    This book is noteworthy, not just because it has been both heavily praised and criticized, but also because it marshals an impressive empirical dataset (a large-N study across eight centuries) to demonstrate that financial crises strike with surprisingly consistent frequency, duration, and ferocity in emerging and developed economies alike.

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