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Mother, Can I Trust the Government? Sustained Financial Deepening; A Political Institutionsview

Marc Quintyn and Genevieve Verdier

No 10/210, IMF Working Papers from International Monetary Fund

Abstract: Only a minority of countries have succeeded in establishing a developed financial system, despite widespread financial liberalization. Confronted with this finding, the political institutions view claims that sustained financial deepening is most likely to take place in institutional environments where governments effectively impose constraints on their own powers in order to create trust. This paper identifies over 200 post-1960 episodes of accelerations in financial development in a large cross-section of countries. We find that the likelihood of an acceleration leading to sustained financial development increases greatly in environments that have high-quality political institutions.

Keywords: Credit expansion; Cross country analysis; Development; Economic growth; Financial systems; Private sector; Political economy; Governance; Financial development, political institutions, financial liberalization, financial deepening, financial sector development, financial system, financial sector, General Financial Markets: Government Policy and Regulation, Financial Institutions and Services: Government Policy and Regulation, Economic History: Financial Markets and Institutions: General, International, or Comparative, (search for similar items in EconPapers)
Pages: 42
Date: 2010-09-01
New Economics Papers: this item is included in nep-pol
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Handle: RePEc:imf:imfwpa:10/210