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The determinants of financial development: Evidence from Bayesian model averaging

Author

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  • Horvath, Roman
  • Horvatova, Eva
  • Siranova, Maria

Abstract

We examine the determinants of financial development using our global sample and employing different measures of financial development that assess the degree of depth and efficiency of financial intermediaries. We use instrumental variable Bayesian model averaging to test competing theories with this unifying framework. After examining nearly 20 potential determinants of financial development, we find that the rule of law, as well as some of its components, is the most important. In addition, our results suggest that wealth inequality is irrelevant to banking sector development but positively associated with stock market development.

Suggested Citation

  • Horvath, Roman & Horvatova, Eva & Siranova, Maria, 2025. "The determinants of financial development: Evidence from Bayesian model averaging," Economic Systems, Elsevier, vol. 49(2).
    • Handle: RePEc:eee:ecosys:v:49:y:2025:i:2:s0939362524000967
    DOI: 10.1016/j.ecosys.2024.101274
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    Keywords

    Bayesian model averaging; Financial development; Rule of law; Wealth inequality;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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