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Political origins of financial structure

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  • Bhattacharyya, Sambit

Abstract

There is growing policy interest in the role of financial structure in promoting development. However, very little is known about how different financial structures emerge and evolve. In this paper we empirically assess the political origins of financial structure. Using difference–in difference estimation and annual data, we study the effects of democratization on financial structure in a sample of 96 countries covering the period 1970–2005. Democratization here corresponds to the event of becoming a democracy. We find that democratization leads to a more market-based financial system. Democratic change could also be incremental rather than a one off. To identify the effect of incremental democratic change on financial structure we estimate a separate model and find that democracy matters. We also find that countries with substantial democratic capital are more likely to have a market-based financial structure. Our main results are robust to a variety of controls, Arellano–Bond GMM estimation, alternative measures of democracy and financial structure, and across different samples.

Suggested Citation

  • Bhattacharyya, Sambit, 2013. "Political origins of financial structure," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 979-994.
  • Handle: RePEc:eee:jcecon:v:41:y:2013:i:4:p:979-994
    DOI: 10.1016/j.jce.2013.05.009
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    Cited by:

    1. Bhattacharyya, Sambit & Hodler, Roland, 2015. "Media freedom and democracy in the fight against corruption," European Journal of Political Economy, Elsevier, vol. 39(C), pages 13-24.
    2. Bhattacharyya, Sambit & Conradie, Louis & Arezki, Rabah, 2017. "Resource discovery and the politics of fiscal decentralization," Journal of Comparative Economics, Elsevier, vol. 45(2), pages 366-382.
    3. 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.
    4. Kevin Williams, 2017. "Does democracy dampen the effect of finance on economic growth?," Empirical Economics, Springer, vol. 52(2), pages 635-658, March.
    5. repec:kap:copoec:v:29:y:2018:i:1:d:10.1007_s10602-017-9255-9 is not listed on IDEAS
    6. Antonis Adam & Sofia Tsarsitalidou, 2018. "Do democracies have higher current account deficits?," Constitutional Political Economy, Springer, vol. 29(1), pages 40-68, March.
    7. repec:eee:riibaf:v:41:y:2017:i:c:p:260-279 is not listed on IDEAS

    More about this item

    Keywords

    Democratization; Democracy; Financial structure;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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