Is Culture a Determinant of Financial Development?

13 Pages Posted: 25 Jan 2013 Last revised: 27 Oct 2013

See all articles by Nabamita Dutta

Nabamita Dutta

University of Wisconsin, La Crosse

Deepraj Mukherjee

Kent State University; Kent State University

Date Written: August 2012

Abstract

The paper investigates the missing link in the literature – whether informal institutions, or what is known as culture, can affect the level of financial development for a country? Our hypothesis stresses that the cultural dimensions of a country can have an impact on its financial set up. We consider multiple dimensions of culture, identified in the literature by Tabellini, to test our hypothesis. As culture evolve in the form of greater trust, control and other traits, individuals’ attitudes towards financial market change, and they engage in greater financial transactions. This, in turn, leads to better financial development. Using quantile estimation technique for a cross-section of 90 countries we find that culture significantly influences the level of financial development. To ensure the robustness of our findings we use Hofstede’s cultural dimension-‘uncertainty avoidance index’ as an alternative measure for culture. Our results hold for multiple measures of financial development.

Keywords: Informal Institutions, Financial Development, Culture, Social capital

JEL Classification: O17, G1, Z10

Suggested Citation

Dutta, Nabamita and Mukherjee, Deepraj, Is Culture a Determinant of Financial Development? (August 2012). Applied Economics Letters, Vol. 19, No. 6, p. 585, 2012. Available at SSRN: https://ssrn.com/abstract=2206550

Nabamita Dutta (Contact Author)

University of Wisconsin, La Crosse ( email )

Dept. of Economics, 1725 State Street
La Crosse, WI 54601
United States
6087855294 (Phone)

Deepraj Mukherjee

Kent State University ( email )

PO Box 5190
Kent, OH 44242
United States
9012835245 (Phone)

HOME PAGE: http://www.deeprajmukherjee.com

Kent State University ( email )

Kent, OH 44242
United States

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