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Legal-Political Factors and the Historical Evolution of the Finance-Growth Link

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  • Michael D. Bordo

    ()
    (Department of Economics, Rutgers University)

  • Peter L. Rousseau

    ()
    (Vanderbilt University, Nashville, TN and Research Associate, NBER.)

Abstract

Recent cross-country investigations of the role of institutional fundamentals such as the protection of property rights in promoting financial development have extended a literature that has for decades maintained that financial factors can affect real outcomes. In this paper we pursue this new direction by considering relationships between finance, growth, legal origin, and political environment in a historical cross-section of 17 countries covering the period from 1880 to 1997. We find that relationships between a county's legal origin (i.e., English, French, German, or Scandinavian) and financial development are roughly consistent with earlier findings but are not persistent. At the same time, political variables such as proportional representation election systems, frequent elections, universal female suffrage, and infrequent revolutions or coups seem linked to larger financial sectors and higher conditional rates of economic growth. Despite the explanatory power of some of our measures of the deeper "fundamentals", however, a significant part of the growth-enhancing role of financial development remains unexplained by them.

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Bibliographic Info

Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 107.

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Length: 57
Date of creation: 02 Jan 2006
Date of revision:
Handle: RePEc:onb:oenbwp:107

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References

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Citations

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Cited by:
  1. Hans Degryse & Thomas Lambert & Armin Schwienbacher, 2013. "The Political Economy of Financial Systems: Evidence from Suffrage Reforms in the Last Two Centuries," CESifo Working Paper Series 4527, CESifo Group Munich.
  2. Michael D. Bordo, 2007. "Growing Up to Financial Stability," NBER Working Papers 12993, National Bureau of Economic Research, Inc.
  3. Svetlana Andrianova & Panicaos Demetriades & Chenggang Xu, 2008. "Political Economy Origins of Financial Markets in Europe and Asia," WEF Working Papers 0034, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
  4. Stephen Haber, 2008. "Differential Paths of Financial Development: Evidence from New World Economies," NBER Chapters, in: Understanding Long-Run Economic Growth: Geography, Institutions, and the Knowledge Economy, pages 89-120 National Bureau of Economic Research, Inc.
  5. Stephen Haber & Enrico Perotti, 2008. "The Political Economy of Financial Systems," Tinbergen Institute Discussion Papers 08-045/2, Tinbergen Institute.
  6. Michael D. Bordo & Peter L. Rousseau, 2011. "Historical Evidence on the Finance-Trade-Growth Nexus," NBER Working Papers 17024, National Bureau of Economic Research, Inc.
  7. Ahlin, Christian & Pang, Jiaren, 2008. "Are financial development and corruption control substitutes in promoting growth?," Journal of Development Economics, Elsevier, vol. 86(2), pages 414-433, June.
  8. Rockoff, Hugh & White, Eugene N., 2012. "Monetary Regimes and Policy on a Global Scale: The Oeuvre of Michael D. Bordo," MPRA Paper 49672, University Library of Munich, Germany, revised May 2013.
  9. Stephen Haber & Enrico Perotti, 2008. "The Political Economy of Financial Systems," Tinbergen Institute Discussion Papers 08-045/2, Tinbergen Institute.
  10. Marc Quintyn & Geneviève Verdier, 2010. "Mother, Can I Trust the Government? Sustained Financial Deepening," IMF Working Papers 10/210, International Monetary Fund.
  11. Enrico Perotti & Marcel Vorage, 2010. "Bank Ownership and Financial Stability," Tinbergen Institute Discussion Papers 10-022/2, Tinbergen Institute, revised 11 Sep 2010.
  12. Le Bris, David, 2013. "Customary versus Civil Law within Old Regime France," MPRA Paper 52123, University Library of Munich, Germany.
  13. Aldo Musacchio, 2010. "Law and Finance c. 1900," NBER Working Papers 16216, National Bureau of Economic Research, Inc.
  14. Claessens, Stijn & Perotti, Enrico, 2007. "Finance and inequality: Channels and evidence," Journal of Comparative Economics, Elsevier, vol. 35(4), pages 748-773, December.
  15. Enrico Perotti & Marcel Vorage, 2010. "Bank Ownership and Financial Stability," Tinbergen Institute Discussion Papers 10-022/2, Tinbergen Institute, revised 11 Sep 2010.

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