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Institutional quality, governance, and financial development

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  • Siong Law
  • W. Azman-Saini

Abstract

Using banking sector and stock market development indicators, we examine the effect of institutional quality on financial development in developed and developing countries. Empirical results are based on dynamic system generalized method of moments estimations and demonstrate that a high-quality institutional environment is important in explaining financial development, specifically for the banking sector. However, the stock market development-institution relationship is contingent one, characterized by a non-monotonic pattern. The results are robust to two measurements of institutions and governance indicators, as well as estimation methods. Copyright Springer-Verlag 2012

Suggested Citation

  • Siong Law & W. Azman-Saini, 2012. "Institutional quality, governance, and financial development," Economics of Governance, Springer, vol. 13(3), pages 217-236, September.
    • Handle: RePEc:spr:ecogov:v:13:y:2012:i:3:p:217-236
    DOI: 10.1007/s10101-012-0112-z
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    More about this item

    Keywords

    Institutions; Governance; Banking sector; Capital market; Panel data analysis; G1; O43;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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