Financial Development and Genetic Diversity
Texas Tech University
University of California, Riverside (UCR) - Department of Finance and Management Science
University of Arizona
March 30, 2015
It is well documented that there is substantial variation in the level of financial development across countries, which research has been trying to explain. In this paper, we investigate how a deep-rooted characteristic – a country’s degree of genetic diversity – impacts the level of financial development. We hypothesize that a country’s degree of genetic diversity can impact its level of financial development through two channels: (i) directly through its effect on innovation in the financial sector, and (ii) indirectly through its effect on productivity and the subsequent demand for financial development. Extending the argument put forth by Ashraf and Galor (2013), we predict a hump-shaped relationship between a country’s degree of genetic diversity and its level of financial development. Using data from almost 150 countries, our cross-sectional analysis reveals results that are consistent with our prediction; namely, we observe a significant and robust hump-shaped effect of a country’s degree of genetic diversity on its level of financial development. Further, we show that both average years of schooling and the quality of social infrastructure within a country are positively associated with the level of financial development.
Number of Pages in PDF File: 56
Keywords: financial development, genetic diversity
JEL Classification: G1, G2, O1, O4, O5
Date posted: March 16, 2014
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