IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

City Size and Financial Development

  • Becker, Bo

    ()

    (University of Illinois at Urbana-Champaign)

Stock markets tend to be few in each country, often unique, and located in the largest cities. Typically, much of the economic activity relating to the stock market takes places in this large city. These facts suggest that agglomeration economies are important. In other words, productivity is enhanced for stock market-workers and -firms located in a large city. After discussing this prima facie evidence of agglomeration economies, we consider the cross-country implications. Countries with larger cities will have better developed stock markets because they can benefit from stronger agglomeration economies surrounding the stock market. This provides an economic theory of financial development which is complementary to the standard legal and political theories of financial development. We establish that city size is a robust determinant of stock market size and activity, but not of other types of financial development (banks). We show that this is not driven by reverse causality and that it is not driven by small or new stock markets. Finally, we show that alternative measures of a country's geography, such as urbanization and the population of the second largest city, do not predict stock market development, implying that we do not capture some alternative geographic effect. We conclude that there is a significant positive effect of city size on stock market development, that this reflects agglomeration economies. This explains why countries with large cities have better developed stock markets.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sifr.org/PDFs/sifr-wp46.pdf
Our checks indicate that this address may not be valid because: 404 Not Found (http://www.sifr.org/PDFs/sifr-wp46.pdf [301 Moved Permanently]--> http://sifr.org/PDFs/sifr-wp46.pdf). If this is indeed the case, please notify (Anki Helmer)


Download Restriction: no

Paper provided by Institute for Financial Research in its series SIFR Research Report Series with number 46.

as
in new window

Length: 28 pages
Date of creation: 15 Sep 2006
Date of revision:
Handle: RePEc:hhs:sifrwp:0046
Contact details of provider: Postal: Institute for Financial Research Drottninggatan 89, SE-113 60 Stockholm, Sweden
Phone: +46-8-728-5120
Fax: +46-8-728-5130
Web page: http://www.sifr.org/Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Glenn Allison & Drew Fudenberg, 2002. "Competing Auctions," Harvard Institute of Economic Research Working Papers 1960, Harvard - Institute of Economic Research.
  2. Rosenthal, Stuart S. & Strange, William C., 2004. "Evidence on the nature and sources of agglomeration economies," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 49, pages 2119-2171 Elsevier.
  3. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
  4. Efraim Benmelech & Tobias J. Moskowitz, 2007. "The Political Economy of Financial Regulation: Evidence from U.S. State Usury Laws in the 19th Century," NBER Working Papers 12851, National Bureau of Economic Research, Inc.
  5. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment Updates and Implications," NBER Working Papers 7911, National Bureau of Economic Research, Inc.
  6. Matías Braun & Claudio Raddatz, 2004. "Trade liberalization and the politics of financial development," Working Papers 04-3, Federal Reserve Bank of Boston.
  7. Edward L. Glaeser, 2005. "Urban Colossus: Why is New York America's Largest City?," NBER Working Papers 11398, National Bureau of Economic Research, Inc.
  8. Ashoka Mody & Abdul Abiad, 2005. "Financial Reform; What Shakes It? What Shapes It?," IMF Economic Issues 35, International Monetary Fund.
  9. Gehrig, Thomas, 1998. "Competing markets," European Economic Review, Elsevier, vol. 42(2), pages 277-310, February.
  10. Braun, Matias, 2004. "Trade Liberalization and the Politics of Financial Development," Santa Cruz Department of Economics, Working Paper Series qt70v7f9ff, Department of Economics, UC Santa Cruz.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:hhs:sifrwp:0046. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anki Helmer)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.