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Is culture a determinant of financial development?

Author

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  • Dutta, Nabamita
  • Mukherjee, Deepraj

Abstract

The paper investigates the missing link in the literature – whether informal institutions, or what is known as culture, can affect the level of financial development for a country? Our hypothesis stresses that the cultural dimensions of a country can have an impact on its financial set up. We consider multiple dimensions of culture, identified in the literature by Tabellini, to test our hypothesis. As culture evolve in the form of greater trust, control and other traits, individuals’ attitudes towards financial market change, and they engage in greater financial transactions. This, in turn, leads to better financial development. Using quantile estimation technique for a cross-section of 90 countries we find that culture significantly influences the level of financial development. To ensure the robustness of our findings we use Hofstede’s cultural dimension-‘uncertainty avoidance index’ as an alternative measure for culture. Our results hold for multiple measures of financial development.

Suggested Citation

  • Dutta, Nabamita & Mukherjee, Deepraj, 2011. "Is culture a determinant of financial development?," MPRA Paper 35867, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:35867
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    File URL: https://mpra.ub.uni-muenchen.de/35867/1/MPRA_paper_35867.pdf
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    References listed on IDEAS

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    1. Guido Tabellini, 2008. "Presidential Address Institutions and Culture," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 255-294, 04-05.
    2. Christopher Coyne & Claudia Williamson, 2009. "Trade Openness and Culture," Working Papers 09-05, Department of Economics, West Virginia University.
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    Cited by:

    1. Mukherjee Deepraj & Dutta Nabamita, 2013. "Do Political Institutions and Culture Jointly Matter for Financial Development? A Cross-Country Panel Investigation," Global Economy Journal, De Gruyter, vol. 13(2), pages 203-232, June.
    2. Christian Lambert Nguena & Roger Tsafack Nanfosso, 2013. "What Drives and Limits Financial Deepening Dynamics? Fresh Empirical-based Policy Lessons for African Sub-Regions," AAYE Policy Research Working Paper Series 13_003, Association of African Young Economists, revised Nov 2013.
    3. NGUENA Christian-Lambert & NANFOSSO Roger, 2014. "Macroeconomic Factors and Dynamics of Financial Deepening: An empirical Investigation applied to the CEMAC Sub-region," Working Papers 14/015, African Governance and Development Institute..
    4. Christian Lambert Nguena & Roger Tsafack Nanfosso, 2013. "Financial Deepening Dynamics and Implication for Financial Policy Coordination in a Monetary Union: the case of WAEMU," AAYE Policy Research Working Paper Series 13_005, Association of African Young Economists, revised Nov 2013.

    More about this item

    Keywords

    Informal Institutions; Financial Development; Culture; Social capital;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • Z1 - Other Special Topics - - Cultural Economics
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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