Institutions, Trade, and the Political Economy of Financial Development
Journal
Journal of Institutional and Theoretical Economics
ISSN
0932-4569
ISSN-Digital
1614-0559
Type
journal article
Date Issued
2011-09-01
Author(s)
Abstract
We study how financial development depends on trade openness and different types of institutions. In our model the elite can repress the financial market to keep their capital costs low and to preclude ordinary citizens from producing capitalintensive goods. Financial repression thus raises the price of these goods under autarky. For most world market prices, trade openness therefore makes financial repression less attractive and increases financial development. Better political institutions increase financial development by making financial repression more costly for the elite. Better contracting institutions have countervailing effects on financial development. These predictions are consistent with the existing empirical evidence.
Language
English
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Mohr Siebeck
Publisher place
Tübingen
Volume
167
Number
3
Start page
445
End page
464
Pages
20
Subject(s)
Eprints ID
234970