IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/halshs-01196108.html
   My bibliography  Save this paper

Forms of Democracies and Financial Development

Author

Listed:
  • Pierre Mandon

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)

  • Clément Mathonnat

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)

Abstract

The political economy of finance literature emphasizes the critical role of political institutions in promoting financial development. Related empirical findings highlight a robust positive effect of democratic regimes on financial development compared to dictatorships. However, no study focused so far on identifying the precise political institutions explaining the financial development enhancing effect of democracies. In this paper, we study the effects of disaggregated political institutions on financial development along three institutional dimensions, namely forms of government, electoral rules and state forms. Using a large panel of 140 countries over 1984-2007, we show that institutional details are of crucial importance, since the positive effect of democracies on financial development clearly depends on the precise institutional dimensions at work, namely: parliamentary governments and, to a lesser extent federal states. Thus, our study contributes to the institutional design debate, by showing that the simple promotion of democratic regimes might not be sufficient to foster financial development.

Suggested Citation

  • Pierre Mandon & Clément Mathonnat, 2015. "Forms of Democracies and Financial Development," Working Papers halshs-01196108, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01196108
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01196108
    as

    Download full text from publisher

    File URL: https://shs.hal.science/halshs-01196108/document
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Giavazzi, Francesco & Tabellini, Guido, 2005. "Economic and political liberalizations," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1297-1330, October.
    2. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
    3. Greene, William, 2011. "Fixed Effects Vector Decomposition: A Magical Solution to the Problem of Time-Invariant Variables in Fixed Effects Models?," Political Analysis, Cambridge University Press, vol. 19(2), pages 135-146, April.
    4. Sourafel Girma & Anja Shortland, 2008. "The political economy of financial development," Oxford Economic Papers, Oxford University Press, vol. 60(4), pages 567-596, October.
    5. Sylviane Guillaumont Jeanneney & Kangni Kpodar, 2011. "Financial Development and Poverty Reduction: Can There be a Benefit without a Cost?," Journal of Development Studies, Taylor & Francis Journals, vol. 47(1), pages 143-163.
    6. Bordo, Michael D. & Rousseau, Peter L., 2006. "Legal-political factors and the historical evolution of the finance-growth link," European Review of Economic History, Cambridge University Press, vol. 10(3), pages 421-444, December.
    7. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472, Elsevier.
    8. Stefan Voigt, 2011. "Positive constitutional economics II—a survey of recent developments," Public Choice, Springer, vol. 146(1), pages 205-256, January.
    9. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Law and finance: why does legal origin matter?," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 653-675, December.
    10. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    11. Emilie Caldeira, 2012. "Does the System of Allocation of Intergovernmental Transfers in Senegal Eliminate Politically Motivated Targeting?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 21(2), pages 167-191, March.
    12. Hayo, Bernd & Voigt, Stefan, 2007. "Explaining de facto judicial independence," International Review of Law and Economics, Elsevier, vol. 27(3), pages 269-290, September.
    13. Heinemann, Friedrich & Osterloh, Steffen & Kalb, Alexander, 2014. "Sovereign risk premia: The link between fiscal rules and stability culture," Journal of International Money and Finance, Elsevier, vol. 41(C), pages 110-127.
    14. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(4), pages 803-832, December.
    15. Breusch, Trevor & Ward, Michael B. & Nguyen, Hoa Thi Minh & Kompas, Tom, 2011. "On the Fixed-Effects Vector Decomposition," Political Analysis, Cambridge University Press, vol. 19(2), pages 123-134, April.
    16. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    17. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 717-737.
    18. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416-416.
    19. Witold Jerzy Henisz, 2004. "Political Institutions and Policy Volatility," Economics and Politics, Wiley Blackwell, vol. 16(1), pages 1-27, March.
    20. Sylviane Guillaumont Jeanneney & Kangni Kpodar, 2011. "Financial Development and Poverty Reduction: Can There Be a Benefit Without a Cost?," Post-Print halshs-00601306, HAL.
    21. Torsten Persson & Guido Tabellini, 2005. "The Economic Effects of Constitutions," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661926, December.
    22. Emilie Caldeira & Martial Foucault & Grégoire Rota-Graziosi, 2014. "Does Decentralization Facilitate Access to Poverty-Related Services? Evidence from Benin," NBER Chapters, in: African Successes, Volume I: Government and Institutions, pages 57-102, National Bureau of Economic Research, Inc.
    23. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922.
    24. Wallace E. Oates & Wallace E. Oates, 2004. "An Essay on Fiscal Federalism," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 22, pages 384-414, Edward Elgar Publishing.
    25. Przeworski,Adam & Alvarez,Michael E. & Cheibub,Jose Antonio & Limongi,Fernando, 2000. "Democracy and Development," Cambridge Books, Cambridge University Press, number 9780521793797.
    26. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    27. Huang, Yongfu, 2010. "Political Institutions and Financial Development: An Empirical Study," World Development, Elsevier, vol. 38(12), pages 1667-1677, December.
    28. Przeworski,Adam & Alvarez,Michael E. & Cheibub,Jose Antonio & Limongi,Fernando, 2000. "Democracy and Development," Cambridge Books, Cambridge University Press, number 9780521790321.
    29. Hatra Voghouei & M. Azali & Mohammad Ali Jamali, 2011. "A survey of the determinants of financial development," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 25(2), pages 1-20, November.
    30. Persson, Torsten, 2005. "Forms of Democracy, Policy and Economic Development," CEPR Discussion Papers 4938, C.E.P.R. Discussion Papers.
    31. Hatra Voghouei & M. Azali & Siong Hook Law, 2011. "Does the Political Institution Matter for Financial Development?," Economic Papers, The Economic Society of Australia, vol. 30(1), pages 77-98, March.
    32. Stephen Haber & Enrico Perotti, 2008. "The Political Economy of Financial Systems," Tinbergen Institute Discussion Papers 08-045/2, Tinbergen Institute.
    33. Nicola Persico & Alessandro Lizzeri, 2001. "The Provision of Public Goods under Alternative Electoral Incentives," American Economic Review, American Economic Association, vol. 91(1), pages 225-239, March.
    34. repec:hal:spmain:info:hdl:2441/7o52iohb7k6srk09ni5kl0m3m is not listed on IDEAS
    35. Gerring, John & Thacker, Strom C. & Moreno, Carola, 2005. "Centripetal Democratic Governance: A Theory and Global Inquiry," American Political Science Review, Cambridge University Press, vol. 99(4), pages 567-581, November.
    36. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    37. Yang, Benhua, 2011. "Does democracy foster financial development? An empirical analysis," Economics Letters, Elsevier, vol. 112(3), pages 262-265, September.
    38. Daron Acemoglu, 2005. "Constitutions, Politics and Economics: A Review Essay on Persson and Tabellini's "The Economic Effect of Constitutions"," NBER Working Papers 11235, National Bureau of Economic Research, Inc.
    39. Daron Acemoglu & Simon Johnson, 2005. "Unbundling Institutions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 949-995, October.
    40. Sylviane Guillaumont Jeanneney & Kangni Kpodar, 2011. "Financial Development and Poverty Reduction: Can There be a Benefit without a Cost?," Post-Print halshs-00554229, HAL.
    41. Tsebelis, George, 1999. "Veto Players and Law Production in Parliamentary Democracies: An Empirical Analysis," American Political Science Review, Cambridge University Press, vol. 93(3), pages 591-608, September.
    42. Keefer, Philip & Stasavage, David, 2003. "The Limits of Delegation: Veto Players, Central Bank Independence, and the Credibility of Monetary Policy," American Political Science Review, Cambridge University Press, vol. 97(3), pages 407-423, August.
    43. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    44. Torsten Persson & Guido Tabellini, 2004. "Constitutional Rules and Fiscal Policy Outcomes," American Economic Review, American Economic Association, vol. 94(1), pages 25-45, March.
    45. Thorsten Beck & Asli Demirgüç-Kunt & Ross Levine, 2007. "Finance, inequality and the poor," Journal of Economic Growth, Springer, vol. 12(1), pages 27-49, March.
    46. W. J. Henisz, 2000. "The Institutional Environment for Economic Growth," Economics and Politics, Wiley Blackwell, vol. 12(1), pages 1-31, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Henri Atanga Ondoa & Arthur M. Seabrook, 2022. "Governance and financial development: Evidence from a global sample of 120 countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3405-3420, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pierre MANDON & Clément MATHONNAT, 2015. "Forms of Democracies and Financial Development," Working Papers 201523, CERDI.
    2. Pierre MANDON & Clément MATHONNAT, 2014. "Forms of Democracies and Financial Development," Working Papers 201421, CERDI.
    3. Pierre Mandon & Clément Mathonnat, 2014. "Forms of Democracies and Financial Development," Working Papers halshs-01084679, HAL.
    4. Pierre Mandon & Clément Mathonnat, 2015. "Forms of Democracies and Financial Development," CERDI Working papers halshs-01196108, HAL.
    5. Pierre Mandon & Clément Mathonnat, 2014. "Forms of Democracies and Financial Development," CERDI Working papers halshs-01084679, HAL.
    6. Clément Mathonnat & Alexandru Minea, 2018. "Forms of Democracies and Macroeconomic Volatility: An Exploration of the Political Institutions Black-Box," Post-Print hal-01903680, HAL.
    7. Mathonnat, Clément & Minea, Alexandru, 2019. "Forms of democracy and economic growth volatility," Economic Modelling, Elsevier, vol. 81(C), pages 594-603.
    8. Raja Almarzoqi & Sami Ben Naceur & Akshay Kotak, 2015. "What Matters for Financial Development and Stability?," IMF Working Papers 2015/173, International Monetary Fund.
    9. 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.
    10. Stefan Voigt, 2011. "Positive constitutional economics II—a survey of recent developments," Public Choice, Springer, vol. 146(1), pages 205-256, January.
    11. Sèna Kimm Gnangnon, 2019. "Effect of Export Upgrading on Financial Development," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 10(03), pages 1-37, October.
    12. Effiong, Ekpeno, 2015. "Financial Development, Institutions and Economic Growth: Evidence from Sub-Saharan Africa," MPRA Paper 66085, University Library of Munich, Germany.
    13. Dutt, Pushan & Mobarak, Ahmed Mushfiq, 2016. "Democracy and policy stability," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 499-517.
    14. Alali, Walid Y., 2010. "Impact of Institutions and Policy on Economic Growth: Empirical Evidence," MPRA Paper 115610, University Library of Munich, Germany.
    15. Gnangnon, Sèna Kimm, 2021. "Effect of poverty on financial development: Does trade openness matter?," The Quarterly Review of Economics and Finance, Elsevier, vol. 82(C), pages 97-112.
    16. Dutta, Nabamita & Meierrieks, Daniel, 2021. "Financial development and entrepreneurship," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 114-126.
    17. Eicher, Theo S. & Schreiber, Till, 2010. "Structural policies and growth: Time series evidence from a natural experiment," Journal of Development Economics, Elsevier, vol. 91(1), pages 169-179, January.
    18. Chris Doucouliagos & Jakob de Haan & Jan-Egbert Sturm, 2022. "What drives financial development? A Meta-regression analysis [A new database of financial reforms]," Oxford Economic Papers, Oxford University Press, vol. 74(3), pages 840-868.
    19. Bayar, Yilmaz & Sakar, Emre, 2021. "Impact of Domestic Public Borrowing on Financial Development: Evidence from EU Transition Economies," Asian Journal of Applied Economics, Kasetsart University, Center for Applied Economics Research, vol. 28(1).
    20. Antonio Fatás & Ilian Mihov, 2013. "Policy Volatility, Institutions, and Economic Growth," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 362-376, May.

    More about this item

    Keywords

    cerdi;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:halshs-01196108. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.