What Determines Financial Development? Culture, Institutions or Trade

Principal Investigator(s):  View help for Principal Investigator(s) Nils Herger, Study Center Gerzensee

Version:  View help for Version V1

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Herger_Hodler_Lobsiger_2008.pdf application/pdf 334.7 KB 01/27/2026 03:28:AM
herger_hodler_lobsiger_2008.wf1 application/octet-stream 187.5 KB 01/27/2026 03:06:AM

Project Citation: 

Herger, Nils. What Determines Financial Development? Culture, Institutions or Trade. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2026-01-27. https://doi.org/10.3886/E244685V1

Project Description

Summary:  View help for Summary This paper endeavours to determine in how far theories emphasising cultural values, dysfunctional institutions, or impediments to trade can explain the vast differences in the size of financial systems across the globe. To account for endogeneity, an instrumental variables approach is pursued. For a cross-section of countries, we find that trade openness and institutions constraining the political elite from expropriating financiers tend to promote financial development. Conversely, there is only limited evidence that cultural beliefs and the cost of enforcing financial contracts significantly hamper financial development.



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