Institutional Quality and Financial Market Development: Evidence from International Migrants in the U.S.

47 Pages Posted: 29 Nov 2004

See all articles by Una Okonkwo Osili

Una Okonkwo Osili

Indiana University - Purdue University Indianapolis (IUPUI)

Anna L. Paulson

Federal Reserve Bank of Chicago

Date Written: November 2004

Abstract

A growing body of theoretical and empirical work identifies the ability of a country's institutions to protect private property and provide incentives for investment as a key explanation for the persistent disparity in financial market development. We add to this literature by analyzing the impact of institutions on financial development using data on the financial decisions of immigrants and the native-born in the U.S. While all of the individuals whose decisions we analyze face the same formal institutional framework in the U.S., immigrants bring with them varied experiences with institutions in their home countries. We find that immigrants who come from countries with institutions that are more effective at protecting property rights are more likely to participate in U.S. financial markets. The effect of home country institutions is very persistent and impacts immigrants for the first 25 years that they spend in the U.S. Evidence from variation in the effect of home country institutions by age at migration, suggests that individuals appear to learn about home country institutions before the age of sixteen, probably in the home and potentially at school, rather than through direct experience. These findings are robust to alternative measures of institutional effectiveness and to various methods of controlling for unobserved individual characteristics.

Keywords: Financial market development, institutions, legal origin, immigration

JEL Classification: G18, O17, O57, K2

Suggested Citation

Osili, Una Okonkwo and Paulson, Anna L., Institutional Quality and Financial Market Development: Evidence from International Migrants in the U.S. (November 2004). FRB of Chicago Working Paper No. 2004-19. Available at SSRN: https://ssrn.com/abstract=624190 or http://dx.doi.org/10.2139/ssrn.624190

Una Okonkwo Osili (Contact Author)

Indiana University - Purdue University Indianapolis (IUPUI) ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Anna L. Paulson

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States
312 322 2169 (Phone)

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