WHY DO COUNTRIES DEVELOP MORE FINANCIALLY THAN OTHERS? THE ROLE OF THE CENTRAL BANK AND BANKING SUPERVISION

Lucía Cuadro Sáez (), Sonsoles Gallego Herrero and Alicia Garcia Herrero ()
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Sonsoles Gallego Herrero: Bank of Spain

Finance from EconWPA

Abstract: We construct a new measure of financial development, through multivariate analysis, which includes several indicators of financial size and efficiency for 134 countries. Based on this broad measure, we assess empirically the determinants of financial development focusing on two factors not yet explored in the literature, namely the central bank role and bank regulation and supervision; and we explore the differences between emerging and industrial countries. The results show that a relatively large involvement of the central bank in the financial system contributes to financial development in all countries, other things given. In the industrial country group, both broader central bank objectives and a large LOLR mandate are found to be beneficial. For emerging countries, the central bank involvement in the payment system, as well as broader central bank objectives, seem to enhance financial development. Finally, high quality regulation and supervision, particularly supervisory independence, is beneficial in industrial countries. As for emerging ones, supervisory independence only contributes to financial development if a relatively solid institutional framework is in place

Keywords: Financial development; Financial Regulation and Supervision; Central Bank Objectives; Lender of Last Resort; Payment System (search for similar items in EconPapers)
JEL-codes: G20 C23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-his
Date: Written 2003-04-22
Note: Type of Document - Acrobat PDF; prepared on PC; to print on HP; pages: 52 ; figures: included
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