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

  • Lucía Cuadro Sáez

    (Bank of Spain)

  • Sonsoles Gallego Herrero

    (Bank of Spain)

  • Alicia García Herrero

    (Bank of Spain)

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

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Paper provided by EconWPA in its series Finance with number 0304006.

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Length: 52 pages
Date of creation: 22 Apr 2003
Date of revision:
Handle: RePEc:wpa:wuwpfi:0304006
Note: Type of Document - Acrobat PDF; prepared on PC; to print on HP; pages: 52 ; figures: included
Contact details of provider: Web page: http://econwpa.repec.org

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