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Political origins of financial structure

journal contribution
posted on 2023-06-08, 15:14 authored by Sambit BhattacharyyaSambit Bhattacharyya
There is growing policy interest in the role of financial structure in promoting development. However, very little is known about how different financial structures emerge and evolve. In this paper we empirically assess the political origins of financial structure. Using difference-in difference estimation and annual data, we study the effects of democratization on financial structure in a sample of 96 countries covering the period 1970 to 2005. Democratization here corresponds to the event of becoming a democracy. We find that democratization leads to a more market-based financial system. Democratic change could also be incremental rather than a one off. To identify the effect of incremental democratic change on financial structure we estimate a separate model and find that democracy matters. We also find that countries with substantial democratic capital are more likely to have a market-based financial structure. Our main results are robust to a variety of controls, Arellano-Bond GMM estimation, alternative measures of democracy and financial structure, and across different samples.

History

Publication status

  • Published

File Version

  • Published version

Journal

Journal of Comparative Economics

ISSN

0147-5967

Publisher

Elsevier

Issue

4

Volume

41

Page range

979-994

Department affiliated with

  • Economics Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2013-06-17

First Compliant Deposit (FCD) Date

2013-06-15

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