What determines Financial Development? Culture, Institutions, or Trade

Nils Herger, Roland Hodler and Michael Lobsinger

DEGIT Conference Papers from DEGIT, Dynamics, Economic Growth, and International Trade

Abstract: This paper endeavours to explain the vast differences in the size of capital markets across countries, by drawing together theories emphasising cultural values, dysfunctional institutions, or impediments to trade as obstacles to financial development. To account for endogeneity, instrumental variables pertaining to culture, geography, and colonial history are employed. We find that trade openness and institutions constraining the political elite from expropriating financiers exhibit a strong positive effect on the size of capital markets. Conversely, cultural beliefs and the cost of enforcing financial contracts seem not to introduce significant obstacles for financial development.

Keywords: Financial Development; Culture; Institutional Quality; Trade (search for similar items in EconPapers)
Pages: 28 pages JEL Classification: F36, G2, O16
Date: 2007-06
New Economics Papers: this item is included in nep-dev, nep-his, nep-int and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Journal Article: What Determines Financial Development? Culture, Institutions or Trade (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:deg:conpap:c012_033

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