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The Political Economy of Financial Development

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  • Sourafel Girma

    ()

  • Anja Shortland

    ()

Abstract

Political economy theories of financial development argue that in countries where a narrow elite controls political decisions, financial development may be obstructed to deny access to finance to potential competitors. We use panel data on developed and developing countries from 1975- 2000 to examine this hypothesis, as well as looking at the effect of regime stability on financial development. Our results show that the degree of democracy and political stability are significant explanatory factors in determining the speed of financial development. The banking sector benefits from regime stability and increasing democracy, while stock market capitalisation grows fastest in fully democratic regimes.

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Bibliographic Info

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 04/21.

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Date of creation: Jul 2004
Date of revision: Oct 2004
Handle: RePEc:lec:leecon:04/21

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Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK
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Keywords: Financial markets; Financial Development; Politics; Law and Economics;

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Cited by:
  1. Bhattacharyya, Sambit & Hodler, Roland, 2014. "Do Natural Resource Revenues Hinder Financial Development? The Role of Political Institutions," World Development, Elsevier, vol. 57(C), pages 101-113.
  2. Paul Mizen & Serafeim Tsoukas, . "What Promotes Greater Use of the Corporate Bond Market? A Study of the Issuance Behaviour of Firms in Asia," Discussion Papers 12/17, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  3. Thorsten Beck & Samuel Munzele Maimbo, 2013. "Financial Sector Development in Africa : Opportunities and Challenges," World Bank Publications, The World Bank, number 11881, October.
  4. Raza, Syed Ali & Jawaid, Syed Tehseen & Afshan, Sahar, 2013. "Is Stock Market Sensitive to Foreign Capital Inflows and Economic Growth? Evidence from Pakistan," MPRA Paper 48399, University Library of Munich, Germany.
  5. Ayadi, Rym & Arbak, Emrah & Ben-Naceur, Sami & De Groen, Willem Pieter, 2013. "Benchmarking the Financial Sector in the Southern and Eastern Mediterranean Countries and Projecting 2030 Financial Sector Scenarios," CEPS Papers 7868, Centre for European Policy Studies.
  6. Oscar Becerra & Eduardo Cavallo & Carlos Scartascini, 2010. "The Politics of Financial Development - The Role of Interest Groups and Government Capabilities," Research Department Publications 4686, Inter-American Development Bank, Research Department.
  7. Milo, Melanie S., 2007. "Integrated Financial Supervision: an Institutional Perspective for the Philippines," Discussion Papers DP 2007-17, Philippine Institute for Development Studies.
  8. Melanie S. Milo, 2007. "Integrated Financial Supervision : An Institutional Perspective for the Philippines," Finance Working Papers 22667, East Asian Bureau of Economic Research.
  9. Law, Siong Hook & Azman-Saini, W.N.W., 2008. "The Quality of Institutions and Financial Development," MPRA Paper 12107, University Library of Munich, Germany.
  10. Law, Siong Hook & Singh, Nirvikar, 2014. "Does too much finance harm economic growth?," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 36-44.
  11. Siong Law & W. Azman-Saini, 2012. "Institutional quality, governance, and financial development," Economics of Governance, Springer, vol. 13(3), pages 217-236, September.
  12. Huang, Yongfu, 2010. "Political Institutions and Financial Development: An Empirical Study," World Development, Elsevier, vol. 38(12), pages 1667-1677, December.
  13. 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.
  14. 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.

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