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Mother, Can I Trust the Government? Sustained Financial Deepening

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  • Marc Quintyn
  • Geneviève Verdier

Abstract

Only a minority of countries have succeeded in establishing a developed financial system, despite widespread financial liberalization. Confronted with this finding, the political institutions view claims that sustained financial deepening is most likely to take place in institutional environments where governments effectively impose constraints on their own powers in order to create trust. This paper identifies over 200 post-1960 episodes of accelerations in financial development in a large cross-section of countries. We find that the likelihood of an acceleration leading to sustained financial development increases greatly in environments that have high-quality political institutions.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/210.

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Length: 42
Date of creation: 01 Sep 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/210

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Keywords: Credit expansion; Development; Economic growth; Financial systems; Governance; financial liberalization; financial deepening; financial sector development; financial system; financial sector; financial reforms; credit booms; bank supervision; financial crises; financial crisis; financial markets; stock market development; banking crises; financial repression; credit boom; stock market; financial institutions; financial reform; financial economics; international financial statistics; competitiveness; financial fragility; financial booms; financial dependence; financial resources; banking crisis; bank regulation; banking supervision; international finance; financial sector performance; financial cycles; financial services;

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References

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  1. Hauner, David, 2009. "Public debt and financial development," Journal of Development Economics, Elsevier, Elsevier, vol. 88(1), pages 171-183, January.
  2. Thorsten Beck & Ross Levine, 2003. "Legal Institutions and Financial Development," NBER Working Papers 10126, National Bureau of Economic Research, Inc.
  3. Badi H. Baltagi & Panicos O. Demetriades & Siong Hook Law, 2007. "Financial Development, Openness and Institutions: Evidence from Panel Data," WEF Working Papers, ESRC World Economy and Finance Research Programme, Birkbeck, University of London 0022, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
  4. Raghuram Rajan & Luigi Zingales, 2003. "The Emergence of Strong Property Rights: Speculation from history," NBER Working Papers 9478, National Bureau of Economic Research, Inc.
  5. Addison, Tony & Chowdhury, Abdur R. & Murshed, S. Mansoob, 2002. "By How Much Does Conflict Reduce Financial Development?," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  6. Bordo, Michael D. & Rousseau, Peter L., 2006. "Legal-political factors and the historical evolution of the finance-growth link," European Review of Economic History, Cambridge University Press, Cambridge University Press, vol. 10(03), pages 421-444, December.
  7. Graciela Kaminsky & Sergio Schmukler, 2003. "Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization," NBER Working Papers 9787, National Bureau of Economic Research, Inc.
  8. Dhaneshwar Ghura & Kangni Kpodar & Raju Jan Singh, 2009. "Financial Deepening in the CFA Franc Zone:The Role of Institutions," IMF Working Papers 09/113, International Monetary Fund.
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Cited by:
  1. Degryse, Hans & Lambert, Thomas & Schwienbacher, Armin, 2013. "The Political Economy of Financial Systems: Evidence from Suffrage Reforms in the Last Two Centuries," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9621, C.E.P.R. Discussion Papers.
  2. Marc Quintyn & Sophia Gollwitzer, 2012. "Institutional Transformations, Polity and Economic Outcomes," IMF Working Papers 12/87, International Monetary Fund.

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