Beyond Legal Origin and Checks and Balances : Political Credibility, Citizen Information, and Financial Sector Development
The existing literature emphasizes and contrasts the role of political checks and balances and legal origin in determining the pace of financial sector development. This paper expands substantially on one aspect of this debate: the fact that govern...
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2007/03/7419560/beyond-legal-origin-checks-balances-political-credibility-citizen-information-financial-sector-development http://hdl.handle.net/10986/7204 |
| Summary: | The existing literature emphasizes and
contrasts the role of political checks and balances and
legal origin in determining the pace of financial sector
development. This paper expands substantially on one aspect
of this debate: the fact that government actions that
promote financial sector development, whether prudent
financial regulation or secure property and contract rights,
are public goods and sensitive to political incentives to
provide public goods. Tests of hypotheses emanating from
this argument yield four new conclusions. First, two key
determinants of those incentives-the credibility of
pre-electoral political promises and citizen information
about politician decisions-systematically promote financial
sector development. Second, these political factors, along
with political checks and balances, operate in part through
their influence on the security of property rights, an
argument asserted but not previously tested. Third, contrary
to findings elsewhere in the literature, the political
determinants of financial sector development are significant
even in the presence of controls for legal origin. Finally,
and again in contrast to the literature, the evidence here
suggests that legal origin primarily proxies for political
phenomena. Legal origin is a largely insignificant
determinant of financial sector development when those
phenomena are fully taken into account. |
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