The Determinants of Financial Development: Empirical Evidence from Developed and Developing Countries

Abstract

Countries which initiate economic development, use in the most cases, the mechanisms and tools of the financial sphere to maximize the chances of success of their financial development process. However, some financial, economic and institutional conditions are compulsory for the success of the whole process. In this context, our empirical analysis using panel data is applied on two samples divided among 15 developed and 23 developing countries over a period from 1997 to 2013.The result obtained show that financial development determinants are mainly related to banking and financial sector and the level of economic and human development for both samples. Whereas, the determinants related to economic stability and the legal and institutional framework have a significant impact on financial development only in the developed countries.

Relationship between financial inclusion and financial development in India: Is there any link?

“…Also, GDP per capita and trade openness are a crucial factor for financial development, and causes economic growth in the long run (Baltagi et al, 2007;Benyah, 2010;Cheriff & Dreger, 2014a;Huang, 2005aHuang, , 2005bLaw & Demetriades, 2006a, 2006bLaw & Habibullah, 2009;Naceur et al, 2014a;Nejad, 2010;Sogut, 2008;Takyi & Obeng, 2013a). Many empirical studies explain that trade is positively linked with financial development whereas another factor like Tariff rate, Inflation, and Interest rate are negatively associated with financial development (Cheriff & Dreger, 2014b;Khalfaoui, 2015;Naceur et al, 2014b;Sogut, 2008;Takyi & Obeng, 2013b). A sound financial system is a fundamental character of an enduring economy, which needs an increase in savings and investments.…”

“…Urbanization (share of the urban population) also plays a positive role in enhancing financial development. Human Capital (Secondary School attainment) is positively linked with financial development (Khalfaoui, 2015). The Gross capital formation (formerly as a gross domestic investment) is also playing a positive role in financial development (Naceur et al, 2014b) in the countries.…”

The impact of macroeconomic determinants on the banking sector development in Nepal

“…The results of studies on the relationship between trade openness and the development of the banking industry are varied. Fu et al (2020) and Khalfaoui (2015) observed that trade openness has a negative and significant impact on financial development and is leading indicator of finance development. Luciano & Regis (2007) 2019).…”

Analyzing the Role of Government Efficiency on Financial Development for OECD Countries

“…Due to the supporting evidence that financial development promotes economic growth and has interactions with several other economic and financial variables, a vast literature on the determinants of financial development has emerged. Studies investigated many potential factors as possible determinants of financial development; including inflation (Ayadi, Arbak, Naceur, and De Groen, 2015;Cherif and Dreger, 2016;Kılınc, Seven and Yetkiner, 2017), trade openness (Ruiz, 2018;Ashraf, 2018), income level (Sanfilippo-Azofra and Torre-Olmo, 2018; Tayssir and Feryel, 2018;Dutta and Sobel, 2018), human capital (Ibrahim andSare, 2018, Dutta andSobel, 2018), financial reforms (Ayadi et al, 2015), and bank development (Hamdi, 2015).…”