The Interest Group Theory of Financial Development: Evidence from Regulation

27 Pages Posted: 29 Sep 2013

See all articles by Cagatay Bircan

Cagatay Bircan

European Bank for Reconstruction and Development

David Hauner

International Monetary Fund (IMF) - African Department

Alessandro Prati

International Monetary Fund (IMF) - Research Department, Deceased

Date Written: March 1, 2013

Abstract

We use a new dataset of de jure measures of trade, capital account, product market, and domestic financial regulation for 91 countries from 1973 to 2005 to test Rajan and Zingales’s (2003) interest group theory of financial development. In line with the theory, we find strong evidence that trade liberalization is a leading indicator of domestic financial liberalization. This result is robust to the use of different data frequencies (annual, 5-year intervals), estimation methods (OLS, 2SLS, system GMM) and a check for non-linear effects. However, in contrast to the theory, we do not find consistent evidence of an effect of capital account liberalization.

Keywords: Financial development, Financial liberalization, Trade liberalization

JEL Classification: F13, G00, O16

Suggested Citation

Bircan, Cagatay and Hauner, David and Prati, Alessandro, The Interest Group Theory of Financial Development: Evidence from Regulation (March 1, 2013). EBRD Working Paper No. 150, 2012. Available at SSRN: https://ssrn.com/abstract=2332098 or http://dx.doi.org/10.2139/ssrn.2332098

Cagatay Bircan (Contact Author)

European Bank for Reconstruction and Development ( email )

One Exchange Square
London, EC2A 2JN
United Kingdom
+442073388508 (Phone)
+442073386111 (Fax)

HOME PAGE: http://cagataybircan.com

David Hauner

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

1700 19th Street, NW
Washington, DC 20431
United States

Alessandro Prati

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

Register to save articles to
your library

Register

Paper statistics

Downloads
49
Abstract Views
495
PlumX Metrics