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Why Do Countries Develop More Financially Than Others? The Role Of The Central Bank And Banking Supervision

Author

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  • Lucía Cuadro Sáez

    (Bank of Spain)

  • Sonsoles Gallego Herrero

    (Bank of Spain)

  • Alicia García Herrero

    (Bank of Spain)

Abstract

We construct a new measure of financial development, through multivariate analysis, which includes several indicators of financial size and efficiency for 134 countries. Based on this broad measure, we assess empirically the determinants of financial development focusing on two factors not yet explored in the literature, namely the central bank role and bank regulation and supervision; and we explore the differences between emerging and industrial countries. The results show that a relatively large involvement of the central bank in the financial system contributes to financial development in all countries, other things given. In the industrial country group, both broader central bank objectives and a large LOLR mandate are found to be beneficial. For emerging countries, the central bank involvement in the payment system, as well as broader central bank objectives, seem to enhance financial development. Finally, high quality regulation and supervision, particularly supervisory independence, is beneficial in industrial countries. As for emerging ones, supervisory independence only contributes to financial development if a relatively solid institutional framework is in place

Suggested Citation

  • Lucía Cuadro Sáez & Sonsoles Gallego Herrero & Alicia García Herrero, 2003. "Why Do Countries Develop More Financially Than Others? The Role Of The Central Bank And Banking Supervision," Finance 0304006, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpfi:0304006
    Note: Type of Document - Acrobat PDF; prepared on PC; to print on HP; pages: 52 ; figures: included
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    Cited by:

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    2. Duy‐Tung Bui, 2018. "How Financial Freedom and Integration Change Public Debt Impact on Financial Development in the Asia‐Pacific: A Panel Smooth Transition Regression Approach," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 51(4), pages 486-501, December.
    3. Ciżkowicz, Piotr & Rzońca, Andrzej, 2010. "Inflation and corporate investment in selected OECD countries in the years 1960-2005 – an empirical analysis," MPRA Paper 29846, University Library of Munich, Germany.
    4. David Hauner, 2006. "Fiscal Policy and Financial Development," IMF Working Papers 2006/026, International Monetary Fund.
    5. Albulescu, Claudiu Tiberiu, 2007. "Reconsidérer la fonction de PDR : problème urgent au niveau de la zone euro [Rethinking the LOLR function: a new challenge for eurozone]," MPRA Paper 16583, University Library of Munich, Germany, revised 29 Dec 2008.

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    More about this item

    Keywords

    Financial development; Financial Regulation and Supervision; Central Bank Objectives; Lender of Last Resort; Payment System;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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