National Culture, Institutional Quality, and Financial Development: International Evidence Before and After Financial Crisis

Selma Izadi (), Frankie J. Weinberg and Mamunur Rashid
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Selma Izadi: Department of Economics and Finance, College of Business, Tennessee State University, Nashville, TN 37203, USA
Frankie J. Weinberg: Department of Management, College of Business, Loyola University New Orleans, New Orleans, LA 70118, USA
Mamunur Rashid: Christ Church Business School, Canterbury Christ Church University, Canterbury CT1 1QU, UK

IJFS, 2025, vol. 13, issue 2, 1-23

Abstract: This study examines the impact of Hofstede’s six cultural dimensions and institutional quality on financial development in the periods preceding and following the global financial crisis. The study analyzes data from 33 countries spanning 2001 to 2021 using a combination of OLS, two-stage GMM, and PVAR models and concludes that inflation and economic growth negatively, and exchange rate and institutional quality positively significantly enhance financial development. Countries characterized by low masculinity and uncertainty avoidance scores, alongside high individualism and indulgence scores, tend to exhibit greater financial development. The results also indicate that cultural factors ought to be regarded as dynamic modifiers of financial development. National culture and institutional quality have a consistent influence on financial development pre- as well as post-crisis periods. Policymakers must recognize the significance of both formal and informal institutions in fostering an environment that promotes financial development and growth. A strategic integration of diverse cultural identities and values will confer a competitive advantage to nations. The effective management of cultural diversity and openness is crucial for attracting new investment, fostering innovation, comprehending the needs and skills of the workforce, and promoting financial development.

Keywords: international financial development; Hofstede’s 6-D model of national culture; institutional quality; generalized method of moments (GMM); financial crises (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2025
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