Legal-Political Factors and the Historical Evolution of the Finance-Growth Link

33 Pages Posted: 4 May 2006 Last revised: 2 Jul 2009

See all articles by Michael D. Bordo

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics; National Bureau of Economic Research (NBER)

Peter L. Rousseau

Vanderbilt University - Department of Economics

Date Written: February 2006

Abstract

Recent cross-country investigations of the role of institutional fundamentals such as the protection of property rights in promoting financial development have extended a literature that has for decades maintained that financial factors can affect real outcomes. In this paper we pursue this new direction by considering relationships between finance, growth, legal origin, and political environment in a historical cross-section of 17 countries covering the period from 1880 to 1997. We find that relationships between a county's legal origin (i.e., English, French, German, or Scandinavian) and financial development are roughly consistent with earlier findings but are not persistent. At the same time, political variables such as proportional representation election systems, frequent elections, universal female suffrage, and infrequent revolutions or coups seem linked to larger financial sectors and higher conditional rates of economic growth. Despite the explanatory power of some of our measures of the deeper "fundamentals," however, a significant part of the growth-enhancing role of financial development remains unexplained by them.

Suggested Citation

Bordo, Michael D. and Rousseau, Peter L., Legal-Political Factors and the Historical Evolution of the Finance-Growth Link (February 2006). NBER Working Paper No. w12035. Available at SSRN: https://ssrn.com/abstract=883084

Michael D. Bordo (Contact Author)

Rutgers University, New Brunswick - Department of Economics ( email )

New Brunswick, NJ
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Peter L. Rousseau

Vanderbilt University - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States
615-343-2466 (Phone)
615-343-8495 (Fax)

HOME PAGE: http://www.vanderbilt.edu/econ/faculty/rousseau.html

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