Political Economy Origins of Financial Markets in Europe and Asia

41 Pages Posted: 12 Jun 2008 Last revised: 7 Aug 2008

See all articles by Svetlana Andrianova

Svetlana Andrianova

University of Leicester - Department of Economics

Panicos Demetriades

University of Leicester - Department of Economics

Chenggang Xu

University of Hong Kong

Date Written: January 2008

Abstract

This paper contributes to the finance-growth literature by examining the political economy origins of some of the most successful financial markets in Europe and Asia. It provides historical evidence from London, Amsterdam and Hong Kong that highlights the essential role played by the government sector in kick-starting financial development. We show that the emergence of financial systems did not occur through laissez-faire approaches and that secure property rights alone were not sufficient for financial development. In the cases of London and Amsterdam, governments created large trade monopolies which were responsible for all the major financial innovations of the time. In the case of Hong Kong, where the financial developmentmodel was bank-based, large banking monopolies with close links to the state were created. We argue that the three examples are not special cases and the role of government in the early stages of financial development has been widespread world-wide.

Keywords: Monopoly, politics, institutions, finance

JEL Classification: G18, N20, O16

Suggested Citation

Andrianova, Svetlana and Demetriades, Panicos O. and Xu, Chenggang, Political Economy Origins of Financial Markets in Europe and Asia (January 2008). 21st Australasian Finance and Banking Conference 2008 Paper, Available at SSRN: https://ssrn.com/abstract=1143424 or http://dx.doi.org/10.2139/ssrn.1143424

Svetlana Andrianova (Contact Author)

University of Leicester - Department of Economics ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom

Panicos O. Demetriades

University of Leicester - Department of Economics ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom
+ 44 116 252 2835 (Phone)
+ 44 116 252 2908 (Fax)

HOME PAGE: http://www.le.ac.uk/economics/staff/pd28.html

Chenggang Xu

University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

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