The determinants of financial development: Evidence from Bayesian model averaging

Roman Horvath, Eva Horvatova and Maria Siranova

Economic Systems, 2025, vol. 49, issue 2

Abstract: We examine the determinants of financial development using our global sample and employing different measures of financial development that assess the degree of depth and efficiency of financial intermediaries. We use instrumental variable Bayesian model averaging to test competing theories with this unifying framework. After examining nearly 20 potential determinants of financial development, we find that the rule of law, as well as some of its components, is the most important. In addition, our results suggest that wealth inequality is irrelevant to banking sector development but positively associated with stock market development.

Keywords: Bayesian model averaging; Financial development; Rule of law; Wealth inequality (search for similar items in EconPapers)
JEL-codes: G10 G20 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:49:y:2025:i:2:s0939362524000967

DOI: 10.1016/j.ecosys.2024.101274

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