The Link Between the Economic Structure and Financial Development
B.E. Journal of Macroeconomics, Vol. 10, No. 1, 2010
37 Pages Posted: 24 Jun 2010 Last revised: 30 Jul 2010
Date Written: June 23, 2010
There is now considerable evidence that a range of institutional, legal, cultural, political and religious variables determine financial development. But economists have conjectured that the presence of diversification opportunities in the real economy can also shape the development of the financial sector. This paper finds evidence in support of this conjecture. Both the OLS estimates, and the IV results, which use instruments derived from topographical characteristics, suggest that increased economic concentration can impede financial development. Thus, financial under development might have not only socio-cultural and political causes. Risk diversification opportunities in the real economy might also be key.
Keywords: Financial Development, Economic Structure
JEL Classification: G2, O11
Suggested Citation: Suggested Citation