Political instability: Effects on financial development, roots in the severity of economic inequality

Abstract

We here bring forward strong evidence that political instability impedes financial development, with its variation a primary determinant of differences in financial development around the world. As such, it needs to be added to the short list of major determinants of financial development. First, structural conditions first postulated by Engerman and Sokoloff (2002)

Institutional Determinants of Financial Development in MENA Countries

“…According to Girma and Shortland (2008) and Roe and Siegel (2011) (2007) reported evidence that the relation between bank sector development and GDP growth is actually negative, probably due to the low stage of financial development. While higher GDP growth has a positive impact on the stock market, it does not seem to promote banking activities (Ben Naceur, Cherif and Kandil, 2014).…”

Does financial VAT affect the size of the financial sector?

“…Openness has a negative sign, as found in Kim et al (2010. Political stability has a positive impact on financial development, as seen in Law and Azman-Saini (2008) and Roe and Siegel (2011). Finally, the variable gdppc2 impacts negatively on financial sector size, as shown by Cecchetti and Kharroubi (2012) and Dominguez Martinez and Lopez Del Paso (2014).…”

“…Many authors also study the function of institutions in financial development: Levine et al (2000), Beck et al (2003), Rajan and Zingales (2003), Law and Demetriades (2005), Chinn and Ito (2006), Djankov et al (2007), Law and Azman-Saini (2008), Huang (2010a), Luca and Spatafora (2012) and Allen et al (2014). Other authors focus on the influence of political instability, corruption and other political determinants of financial development, such as Barth et al (2004), Dinc (2005), Detragiache et al (2005), Micco et al (2007) and Roe and Siegel (2011).…”

Do political institutions affect the choice of the U.S. cross-listing venue?

“…We find that ultimate cash flow rights 7 Data on the degree of democracy (not free, partially free, and free) from Freedom House (2010) is available from 1972, hence our 19 year window calculation for the SPI average. 8 Following Roe and Siegel (2011) and Qi et al (2010), we also construct the SPI variable with a moving index with decay rates of 1%, 5%, and 10%. This produces similar results.…”