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The Political Economy of Financial Development

  • Sourafel Girma

    ()

  • Anja Shortland

    ()

Political economy theories of financial development argue that in countries where a narrow elite controls political decisions, financial development may be obstructed to deny access to finance to potential competitors. We use panel data on developed and developing countries from 1975- 2000 to examine this hypothesis, as well as looking at the effect of regime stability on financial development. Our results show that the degree of democracy and political stability are significant explanatory factors in determining the speed of financial development. The banking sector benefits from regime stability and increasing democracy, while stock market capitalisation grows fastest in fully democratic regimes.

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File URL: http://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp04-21.pdf
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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 04/21.

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Date of creation: Jul 2004
Date of revision: Oct 2004
Handle: RePEc:lec:leecon:04/21
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