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Is culture a determinant of financial development?

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  • Nabamita Dutta
  • Deepraj Mukherjee

Abstract

This article investigates the missing link in the literature -- whether informal institutions, or what is known as culture, can affect the level of financial development for a country? Our hypothesis stresses that the cultural dimensions of a country can have an impact on its financial set-up. We consider multiple dimensions of culture, identified in the literature by Tabellini (2008), to test our hypothesis. As culture evolves in the form of greater trust, control and other traits, individuals' attitudes towards financial market change, and they engage in greater financial transactions. This, in turn, leads to better financial development. Using quantile estimation technique for a cross section of 90 countries, we find that culture significantly influences the level of financial development. To ensure the robustness of our findings we use Hofstede's cultural dimension -- ‘Uncertainty Avoidance Index’ (UAI) -- as an alternative measure for culture. Our results hold for multiple measures of financial development.

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File URL: http://hdl.handle.net/10.1080/13504851.2011.589800
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 19 (2012)
Issue (Month): 6 (April)
Pages: 585-590

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Handle: RePEc:taf:apeclt:v:19:y:2012:i:6:p:585-590

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  1. Christopher Coyne & Claudia Williamson, 2009. "Trade Openness and Culture," Working Papers 09-05, Department of Economics, West Virginia University.
  2. Guido Tabellini, 2008. "Presidential Address Institutions and Culture," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 255-294, 04-05.
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