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Financial Development, Financial Liberalization and Social Capital

Author

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  • Elkhuizen, Luuk
  • Hermes, Niels
  • Jacobs, Jan

    (University of Groningen)

Abstract

The relationship between financial liberalization policies and financial development is controversial. The impact of these policies differs greatly across countries. In the literature, the quality of formal institutions has been identified as an important source of this heterogeneity, as countries with a weak institutional environment generally fail to benefit from financial liberalization. Using panel data covering 82 countries for the period 1973–2008, we find evidence that social capital may substitute for formal institutions as a prerequisite for effective financial liberalization policies. In particular, we find that during the post Washington-consensus period countries with a high prevailing level of social capital can ensure that financial liberalization positively influences financial development, despite the poor quality of their formal institutions.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Elkhuizen, Luuk & Hermes, Niels & Jacobs, Jan, 2016. "Financial Development, Financial Liberalization and Social Capital," Research Report 16021-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    • Handle: RePEc:gro:rugsom:16021-eef
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    2. Maryam Barzegar Marvasti & Somayeh Razzaghi, 2020. "Investigating the Determinants of Financial Development in OPEC Countries: An Application of Bayesian Model Averaging Approach," International Journal of Energy Economics and Policy, International Journal of Energy Economics and Policy, vol. 10(1), pages 342-352.
    3. Muhammad Arshad Khan & Abdul Rahman & Rameez Tariq, 2025. "Modelling Trilogies Between Financial Liberalization, Human Capital and Financial Development: Evidence from Pakistan Using Threshold Model Approach," Journal of South Asian Development, , vol. 20(3), pages 364-394, December.
    4. Peng, Yiqing & Hermes, Niels & Lensink, Robert, 2026. "Formal institutions and financial inclusion: Evidence from cross-country analysis," Research in International Business and Finance, Elsevier, vol. 87(C).
    5. Chien-Chiang Lee & Farzan Yahya & Asif Razzaq, 2023. "Greening South Asia with Financial Liberalization, Human Capital, and Militarization: Evidence from the CS-ARDL Approach," Energy & Environment, , vol. 34(6), pages 1957-1981, September.
    6. Ulke, Dominik, 2026. "Facilitator or inhibitor?," International Review of Economics & Finance, Elsevier, vol. 106(C).
    7. Wasi Ul Hassan Shah & Bo Wang & Rizwana Yasmeen, 2023. "Evaluating the role of banking efficiency, institutions and financial development for sustainable development: Implications for Belt and Road Initiative (BRI)," PLOS ONE, Public Library of Science, vol. 18(10), pages 1-19, October.
    8. Adewosi, O. Adegoke & Manu Donga & Adamu Idi & Buba Abdullahi, 2018. "An Examination of Drivers of Financial development: Evidence in West African Countries," Pakistan Journal of Humanities and Social Sciences, International Research Alliance for Sustainable Development (iRASD), vol. 6(1), pages :132-143, June.
    9. Chenggang Li & Gang Zhao & Keumseok Peter Koh & Zhenci Xu & Mu Yue & Weiyan Wang & Yuanyuan Tan & Liang Wu, 2024. "Impact of China’s financial development on the sustainable development goals of the Belt and Road Initiative participating countries," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 11(1), pages 1-12, December.
    10. Müslüm Polat & Enes Yildiz & Mesut Aslan, 2024. "Impact of Financial Globalization on Financial Development in Developed and Developing Countries," Politická ekonomie, Prague University of Economics and Business, vol. 2024(4), pages 702-726.
    11. Slater, Giulia, 2024. "The effects of social capital deprivation for wellbeing: Evidence from the Covid-19 pandemic," Economics & Human Biology, Elsevier, vol. 54(C).
    12. Biruk Birhanu Ashenafi & Yan Dong, 2024. "Decomposing the impact of financial openness on finance and income inequality: principle vs. outcome-based approaches from Africa," Economic Change and Restructuring, Springer, vol. 57(2), pages 1-32, April.
    13. Humaira Raffat & Danish Ahmed Siddiqui, 2020. "Does Openness, and Productivity Matters for FDI: A Global Interactive Analysis Based on the Complementary Role of Institutions," Issues in Economics and Business, Macrothink Institute, vol. 6(2), pages 1-21, December.
    14. Chletsos, Michael & Sintos, Andreas, 2024. "Political stability and financial development: An empirical investigation," The Quarterly Review of Economics and Finance, Elsevier, vol. 94(C), pages 252-266.

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