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The interest group theory of financial development: evidence from regulation

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Listed:
  • Cagatay Bircan

    (EBRD)

  • David Hauner

    (IMF)

  • Alessandro Prati

    (IMF)

Abstract

We use a new dataset of de jure measures of trade, capital account, product market and domestic financial regulation for 91 countries from 1973 to 2005 to test Rajan and Zingales’s (2003) interest group theory of financial development. In line with the theory, we find strong evidence that trade liberalisation is a leading indicator of domestic financial liberalisation. This result is robust to the use of different data frequencies, estimation methods and a check for non-linear effects. However, in contrast to the theory, we do not find consistent evidence of an effect of capital account liberalisation on financial development.

Suggested Citation

  • Cagatay Bircan & David Hauner & Alessandro Prati, 2012. "The interest group theory of financial development: evidence from regulation," Working Papers 150, European Bank for Reconstruction and Development, Office of the Chief Economist.
    • Handle: RePEc:ebd:wpaper:150
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    3. Herwartz, Helmut & Walle, Yabibal M., 2014. "Openness and the finance-growth nexus," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 235-247.

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    More about this item

    Keywords

    Financial development; financial liberalisation; trade liberalisation;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • G00 - Financial Economics - - General - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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