The Political Economy of Financial Development
Posted: 2 Oct 2008
Date Written: October 2008
Political economy theories of financial development argue that in countries where a narrow elite controls political decisions, financial development may be obstructed to deny access to finance to potential competitors. We use panel data on developed and developing countries from 1975–2000 to examine the effect of a country's democracy characteristics and regime change on financial development. Our results show that regime stability and democracy promote financial development, with additional benefits from fully democratic regimes.
JEL Classification: G18, K0, O16, P16
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