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What Determines Financial Development? Culture, Institutions or Trade

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  • Nils Herger

    ()

  • Roland Hodler
  • Michael Lobsiger

Abstract

This paper endeavours to explain the vast differences in the size of capital markets across countries, by drawing together theories emphasising cultural values, dysfunctional institutions, or impediments to trade as obstacles to financial development. To account for endogeneity, instrumental variables pertaining to culture, geography, and colonial history are employed. We find that trade openness and institutions constraining the political elite from expropriating financiers exhibit a strong positive effect on the size of capital markets. Conversely, cultural beliefs and the cost of enforcing financial contracts seem not to introduce significant obstacles for financial development.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Article provided by Springer in its journal Review of World Economics.

Volume (Year): 144 (2008)
Issue (Month): 3 (October)
Pages: 558-587

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Handle: RePEc:spr:weltar:v:144:y:2008:i:3:p:558-587

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Related research

Keywords: Financial development; culture; institutional quality; trade;

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References

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Citations

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Cited by:
  1. Roxana Mihet, 2013. "Effects of culture on firm risk-taking: a cross-country and cross-industry analysis," Journal of Cultural Economics, Springer, vol. 37(1), pages 109-151, February.
  2. Sambit Bhattacharyya & Roland Hodler, 2010. "Do Natural Resource Revenues Hinder Financial Development? The Role of Political Institutions," CSAE Working Paper Series 2010-40, Centre for the Study of African Economies, University of Oxford.
  3. Roxana Mihet, 2012. "Effects of Culture on Firm Risk-Taking," IMF Working Papers 12/210, International Monetary Fund.
  4. Ang, James B. & Kumar, Sanjesh, 2014. "Financial development and barriers to the cross-border diffusion of financial innovation," Journal of Banking & Finance, Elsevier, vol. 39(C), pages 43-56.
  5. Sibel Bali Eryigit, 2010. "FINANCIAL DEVELOPMENT and INSTITUTIONS: A LITERATURE REVIEW," Anadolu University Journal of Social Sciences, Anadolu University, vol. 10(2), pages 111-122, May.
  6. Vivien Kappel, 2010. "The Effects of Financial Development on Income Inequality and Poverty," CER-ETH Economics working paper series 10/127, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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