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Land Distribution and Financial System Development

Author

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  • Dietrich Vollrath
  • Lennart Erickson

Abstract

Research on credit markets from developing economies, as well as work on the origin of institutions in general, has suggested that land inequality may play a role in determining financial development. In this paper we establish empirically that initial land inequality is a significant predictor of financial depth across countries, even while controlling for other predictors such as legal origin, ethnic fractionalization, and income inequality. To examine this relationship we have created a new measure of land distribution within countries that builds upon the work of Deininger and Squire (1998) by explicitly accounting for landlessness. In addition to being a significant predictor of financial development, land inequality is found to be uncorrelated with other fundamental characteristics of economies, suggesting its possible use in a wider range of research.

Suggested Citation

  • Dietrich Vollrath & Lennart Erickson, 2007. "Land Distribution and Financial System Development," IMF Working Papers 07/83, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:07/83
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    References listed on IDEAS

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    6. 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.
    7. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. " Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
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    Citations

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    Cited by:

    1. Vollrath, Dietrich, 2008. "Agrarian Structure and Endogenous Financial System Development," MPRA Paper 11538, University Library of Munich, Germany.
    2. Dalgaard, Carl-Johan & Olsson, Ola, 2007. "Why Are Market Economies Politically Stable? A Theory of Capitalist Cohesion," Working Papers in Economics 280, University of Gothenburg, Department of Economics.
    3. José María, Larrú, 2012. "La relación entre la ayuda al desarrollo y la desigualdad. Evidencia y justificación teórica
      [Aid and inequality relationship. Evidence and theoretical justification]
      ," MPRA Paper 38857, University Library of Munich, Germany.
    4. Mauro Caselli, 2012. "Does wealth inequality reduce the gains from trade?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 148(2), pages 333-356, June.

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