Do Financial Sector Reforms Lead to Financial Development? Evidence from a New Dataset

44 Pages Posted: 18 Dec 2008

See all articles by Thierry Tressel

Thierry Tressel

International Monetary Fund (IMF) - Research Department

Enrica Detragiache

International Monetary Fund (IMF) - European Department

Date Written: December 2008

Abstract

This paper studies whether the policies that, over the past decades, liberalized banking systems around the world have resulted in deeper credit markets. To measure banking sector reforms we use a new index that tracks policy changes in five separate areas for 91 countries over 1973-2005. We find that reforms have led to financial deepening, but only in countries with institutions that place checks and balances on political power. We interpret this as evidence of a complementarity between financial sector reforms and political institutions that protect property rights. Other country characteristics do not seem to significantly influence the effect of banking reforms on financial development.

Keywords: Economic reforms, Financial sector, Development, Banking systems, Political economy, Credit policy, Economic models

Suggested Citation

Tressel, Thierry and Detragiache, Enrica, Do Financial Sector Reforms Lead to Financial Development? Evidence from a New Dataset (December 2008). IMF Working Papers, Vol. , pp. 1-42, 2008. Available at SSRN: https://ssrn.com/abstract=1316733

Thierry Tressel (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Enrica Detragiache

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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