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Political Economy Origins of Financial Markets in Europe and Asia

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  • Svetlana Andrianova

    ()

  • Panicos Demetriades

    ()

  • Chenggang Xu

Abstract

This paper contributes to the finance-growth literature by examining the political economy origins of some of the most successful financial markets in Europe and Asia. It provides historical evidence from London, Amsterdam and Hong Kong that highlights the essential role played by the government sector in kick-starting financial development. We show that the emergence of financial systems did not occur through laissez-faire approaches and that secure property rights alone were not sufficient for financial development. In the cases of London and Amsterdam, governments created large trade monopolies which were responsible for all the major financial innovations of the time. In the case of Hong Kong, where the financial developmentmodel was bank-based, large banking monopolies with close links to the state were created. We argue that the three examples are not special cases and the role of government in the early stages of financial development has been widespread world-wide.

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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 08/1.

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Date of creation: Jan 2008
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Handle: RePEc:lec:leecon:08/1

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Keywords: Monopoly; politics; institutions; finance;

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References

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  1. Peter L. Rousseau, 2003. "Historical perspectives on financial development and economic growth," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 81-106.
  2. Raghuram G. Rajan & Luigi Zingales, 2000. "The Great Reversals: The Politics of Financial Development in the 20th Century," OECD Economics Department Working Papers 265, OECD Publishing.
  3. Ross Levine, 2003. "More on finance and growth: more finance, more growth?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 31-46.
  4. Acemoglu, Daron & Johnson, Simon & Robinson, James A, 2004. "Institutions as the Fundamental Cause of Long-Run Growth," CEPR Discussion Papers 4458, C.E.P.R. Discussion Papers.
  5. Panicos O Demetriades & Kul B Luintel, 2000. "Financial Restraints in the South Korean Miracle," Discussion Papers in Economics 00/5, Department of Economics, University of Leicester.
  6. Michele Fratianni & Franco Spinelli, 2007. "Did Genoa and Venice Kick a Financial Revolution in the Quattrocento?," Working Papers 112, Oesterreichische Nationalbank (Austrian Central Bank).
  7. David Stasavage, 2002. "Credible Commitment in Early Modern Europe: North and Weingast Revisited," Journal of Law, Economics and Organization, Oxford University Press, vol. 18(1), pages 155-186, April.
  8. Carlos, Ann M. & Key, Jennifer & Dupree, Jill L., 1998. "Learning and the Creation of Stock-Market Institutions: Evidence from the Royal African and Hudson's Bay Companies, 1670–1700," The Journal of Economic History, Cambridge University Press, vol. 58(02), pages 318-344, June.
  9. Svetlana Andrianova & Panicos Demetriades & Anja Shortland, 2002. "Government Ownership of Banks, Institutions, and Financial Development," Discussion Papers in Economics 02/13, Department of Economics, University of Leicester, revised Aug 2006.
  10. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(04), pages 803-832, December.
  11. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472 Elsevier.
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Cited by:
  1. Xu, Cheng-Gang, 2010. "The Institutional Foundations of China’s Reforms and Development," CEPR Discussion Papers 7654, C.E.P.R. Discussion Papers.

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