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Do Financial Sector Reforms Lead to Financial Development? Evidence from a New Dataset

  • Thierry Tressel
  • Enrica Detragiache

This paper studies whether the policies that, over the past decades, liberalized bankingsystems around the world have resulted in deeper credit markets. To measure banking sectorreforms we use a new index that tracks policy changes in five separate areas for 91 countriesover 1973-2005. We find that reforms have led to financial deepening, but only in countrieswith institutions that place checks and balances on political power. We interpret this asevidence of a complementarity between financial sector reforms and political institutions thatprotect property rights. Other country characteristics do not seem to significantly influencethe effect of banking reforms on financial development.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/265.

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Length: 42
Date of creation: 01 Dec 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/265
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