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Institutional quality, governance, and financial development

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  • Siong Law

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  • 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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    Cited by:

    1. Ng, Adam & Ibrahim, Mansor H. & Mirakhor, Abbas, 2016. "Does trust contribute to stock market development?," Economic Modelling, Elsevier, vol. 52(PA), pages 239-250.
    2. Gani, Azmat & Clemes, Michael D., 2016. "Does the strength of the legal systems matter for trade in insurance and financial services?," Research in International Business and Finance, Elsevier, vol. 36(C), pages 511-519.
    3. repec:rej:journl:v:19:y:2016:i:61:p:211-226 is not listed on IDEAS
    4. Law, Siong Hook & Azman-Saini, W.N.W. & Ibrahim, Mansor H., 2013. "Institutional quality thresholds and the finance – Growth nexus," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5373-5381.
    5. Jakob de Haan & Jan-Egbert Sturm, 2016. "Finance and income inequality: A review and new evidence," DNB Working Papers 530, Netherlands Central Bank, Research Department.
    6. Law, Siong Hook & Singh, Nirvikar, 2014. "Does too much finance harm economic growth?," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 36-44.

    More about this item

    Keywords

    Institutions; Governance; Banking sector; Capital market; Panel data analysis; G1; O43;

    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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