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Legal-political factors and the historical evolution of the finance-growth link

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Author Info
BORDO, MICHAEL D.
ROUSSEAU, PETER L.

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Abstract

Recent cross-country investigations of the role of institutional fundamentals, such as the protection of property rights, in promoting financial development have extended a literature that has for decades maintained that financial factors can affect real outcomes. In this article we pursue this new direction by considering relationships between finance, growth, legal origin, and the political environment in a historical cross-section of 17 countries covering the period from 1880 to 1997. We find that relationships between a country s legal origin (such as English, French, German, or Scandinavian) and financial development are for the most part consistent with earlier findings but are not persistent. At the same time, political variables such as proportional representation election systems, frequent elections, universal female suffrage, and infrequent revolutions or coups seem linked to larger financial sectors and higher conditional rates of economic growth. Despite the explanatory power of some of our measures of the deeper fundamentals, however, a significant part of the growth-enhancing role of financial development remains unexplained by them.

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File URL: http://journals.cambridge.org/abstract_S136149160600181X
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Publisher Info
Article provided by Cambridge University Press in its journal European Review of Economic History.

Volume (Year): 10 (2006)
Issue (Month): 03 (December)
Pages: 421-444
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Handle: RePEc:cup:ereveh:v:10:y:2006:i:03:p:421-444_00

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Clive Bell & Peter L. Rousseau, 1999. "Post-Independence India: A Case of Finance-Led Industrialization?," Working Papers 0019, Department of Economics, Vanderbilt University, revised Jun 2000. [Downloadable!]
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  2. Peter L. Rousseau, 2003. "Historical perspectives on financial development and economic growth," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 81-106. [Downloadable!]
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  3. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Harvard Institute of Economic Research Working Papers 1788, Harvard - Institute of Economic Research.
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  4. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February. [Downloadable!] (restricted)
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  5. Sylla, Richard, 2002. "Financial Systems And Economic Modernization," The Journal of Economic History, Cambridge University Press, vol. 62(02), pages 277-292, September. [Downloadable!]
  6. Alesina, Alberto, et al, 1996. " Political Instability and Economic Growth," Journal of Economic Growth, Springer, vol. 1(2), pages 189-211, June.
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  7. Panicos O. Demetriades & Khaled A.Hussein, 1995. "Does Financial Development Cause Economic Growth? Time-Series Evidence from 16 Countries," Keele Department of Economics Discussion Papers (1995-2001) 95/13, Department of Economics, Keele University.
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  8. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Naomi R. Lamoreaux & Jean-Laurent Rosenthal, 2004. "Legal Regime and Business's Organizational Choice: A Comparison of France and the United States," NBER Working Papers 10288, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Rousseau, Peter L. & Wachtel, Paul, 2002. "Inflation thresholds and the finance-growth nexus," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 777-793, November. [Downloadable!] (restricted)
  11. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2002. "Law and finance : why does legal origin matter?," Policy Research Working Paper Series 2904, The World Bank. [Downloadable!]
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  12. Marco Pagano & Paolo Volpin, 1999. "The Political Economy of Corporate Governance," CSEF Working Papers 29, Centre for Studies in Economics and Finance (CSEF), University of Salerno, Italy, revised 01 Jul 2005. [Downloadable!]
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  13. Gylfason, Thorvaldur & Herbertsson, Tryggvi Thor, 2001. "Does inflation matter for growth?," Japan and the World Economy, Elsevier, vol. 13(4), pages 405-428, December. [Downloadable!] (restricted)
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  14. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Levine, Ross & Loayza, Norman & Beck, Thorsten, 2000. "Financial intermediation and growth: Causality and causes," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 31-77, August. [Downloadable!] (restricted)
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  16. Rousseau, Peter L & Wachtel, Paul, 1998. "Financial Intermediation and Economic Performance: Historical Evidence from Five Industrialized Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 657-78, November.
  17. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 717-37, August. [Downloadable!] (restricted)
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  18. Rousseau, Peter L., 1999. "Finance, investment, and growth in Meiji-era Japan," Japan and the World Economy, Elsevier, vol. 11(2), pages 185-198, April. [Downloadable!] (restricted)
  19. Panicos O. Demetriades & Philip Arestis, 1996. "Financial Development and Economic Growth: Assessing the Evidence," Keele Department of Economics Discussion Papers (1995-2001) 96/16, Department of Economics, Keele University.
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  20. Thorsten Beck & Ross Levine, 2004. "Legal Institutions and Financial Development," NBER Working Papers 10417, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  21. Boyd, John H. & Levine, Ross & Smith, Bruce D., 2001. "The impact of inflation on financial sector performance," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 221-248, April. [Downloadable!] (restricted)
  22. Barro, Robert J. & Lee, Jong-Wha, 1994. "Sources of economic growth," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40, pages 1-46, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Michael D. Bordo, 2007. "Growing Up to Financial Stability," NBER Working Papers 12993, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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