Investigating the Effect of Institution Quality on Financial Development in Developing Countries

Bakhtiar Javaheri (), Khaled Ahmadzadeh () and Homeyra Shahveisi ()
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Bakhtiar Javaheri: Assistant Professor of Economics, University of Kurdistan
Khaled Ahmadzadeh: Assistant Professor of Economics, University of Kurdistan
Homeyra Shahveisi: Master of Economics, University of Kurdistan

Quarterly Journal of Applied Theories of Economics, 2021, vol. 7, issue 4, 251-270

Abstract: Since the Financial development through direct and indirect channels helps to economic growth and development, and achieving optimal economic growth is one of the goals of countries; therefore, the present study seeks to identify the factors affecting financial development in developing countries. In this study using the System GMM method, the impact of institutional quality on financial development in two groups of selected developing countries in during 2000-2019 has been investigated. The index used for financial development of the first group is the domestic credit provided to the private sector as a ratio of GDP and the index of financial development used for the second group is the Stock market capitalization to GDP. Also, six Good Governance Indicators have been used as a measure of institutional quality. The result shows that the Good Governance indicators have a positive effect on credit except for the voice and accountability. In addition, Control of Corruption, Government Effectiveness, Regulatory Quality and Rule of Law have a positive effect on the stock market capitalization. Therefore, enhancing institution quality would encourage the development of financial markets in the country studies, and policymakers must adopt appropriate policies to improve the quality of institutions

Keywords: Institutional Quality; Financial Development; Developing Countries; System GMM (search for similar items in EconPapers)
JEL-codes: G10 G18 G21 G38 (search for similar items in EconPapers)
Date: 2021
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