Effects of institution, legal tradition and political factors on financial development

This study deals with the effect of economic institutions, legal tradition and political factors on variation of financial development over 27 years where these determinants are themselves endogenous and determine by political factors. First, by considering the theory of “economic institution” propo...

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Main Author:	Voghouei, Hatra
Format:	Thesis
Language:	English English
Published:	2010
Subjects:	Finance - Law and legislation Law and economic development Finance - Political aspects
Online Access:	http://psasir.upm.edu.my/id/eprint/19470/1/FEP_2010_1_F.pdf
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id	my-upm-ir.19470
record_format	uketd_dc
spelling	my-upm-ir.194702013-03-29T08:39:03Z Effects of institution, legal tradition and political factors on financial development 2010-08 Voghouei, Hatra This study deals with the effect of economic institutions, legal tradition and political factors on variation of financial development over 27 years where these determinants are themselves endogenous and determine by political factors. First, by considering the theory of “economic institution” proposed by Acemoglu et al (2004) this study indicates that two groups of political power (de jure political power or political institution and de facto political power or distribution of resource) determine the economic institutions which are important in variations of financial development. Second, by referring to the theory of “dynamic legal tradition” proposed by Beck et al (2001), it suggests that political factors in countries with different legal adaptability affect legal environments which are important in promoting the financial system. Third, it presents that the political factors directly and indirectly through other determinants of financial development could explain the variation of financial development over the years. By using the dynamic panel data of 60 countries during 1980-2006, the empirical results showed that de jure political power has more significant effect on financial development than de facto political power. These outcomes have important policy implications. The emphasis on strengthening de jure political factor through effective mechanism of checks and balance, promoting political competition and free stream of information, will help to put the economic institution in power that promote the development of financial system. The results support the idea that political power could change the legal environments which are important in development of financial systems. It showed that the political factors that promote shareholder rights and investor protection respectively could promote financial system more than the other factors. The results also showed that the effect of political changes on financial development in common law countries is more than this effect in German law countries. Finally, the results clarified that the development in financial system positively responds to variation of political variables. It showed that when the direct effect of political factors is considered the political stability has more effect on financial development than the other factors. Moreover, when the direct effect alongside the indirect effects through other determinants are considered, political stability has more impact in development of banking sector though, the effect of political competition on development of stock market is more than the others. Thus, different aspects of political factors which have positive effect on financial development could be used as policymakers’ tools in order to achieve more financial development and hence economic growth. Finance - Law and legislation Law and economic development Finance - Political aspects 2010-08 Thesis http://psasir.upm.edu.my/id/eprint/19470/ http://psasir.upm.edu.my/id/eprint/19470/1/FEP_2010_1_F.pdf application/pdf en public phd doctoral Universiti Putra Malaysia Finance - Law and legislation Law and economic development Finance - Political aspects Faculty of Economics and Management English
institution	Universiti Putra Malaysia
collection	PSAS Institutional Repository
language	English English
topic	Finance - Law and legislation Law and economic development Finance - Political aspects
spellingShingle	Finance - Law and legislation Law and economic development Finance - Political aspects Voghouei, Hatra Effects of institution, legal tradition and political factors on financial development
description	This study deals with the effect of economic institutions, legal tradition and political factors on variation of financial development over 27 years where these determinants are themselves endogenous and determine by political factors. First, by considering the theory of “economic institution” proposed by Acemoglu et al (2004) this study indicates that two groups of political power (de jure political power or political institution and de facto political power or distribution of resource) determine the economic institutions which are important in variations of financial development. Second, by referring to the theory of “dynamic legal tradition” proposed by Beck et al (2001), it suggests that political factors in countries with different legal adaptability affect legal environments which are important in promoting the financial system. Third, it presents that the political factors directly and indirectly through other determinants of financial development could explain the variation of financial development over the years. By using the dynamic panel data of 60 countries during 1980-2006, the empirical results showed that de jure political power has more significant effect on financial development than de facto political power. These outcomes have important policy implications. The emphasis on strengthening de jure political factor through effective mechanism of checks and balance, promoting political competition and free stream of information, will help to put the economic institution in power that promote the development of financial system. The results support the idea that political power could change the legal environments which are important in development of financial systems. It showed that the political factors that promote shareholder rights and investor protection respectively could promote financial system more than the other factors. The results also showed that the effect of political changes on financial development in common law countries is more than this effect in German law countries. Finally, the results clarified that the development in financial system positively responds to variation of political variables. It showed that when the direct effect of political factors is considered the political stability has more effect on financial development than the other factors. Moreover, when the direct effect alongside the indirect effects through other determinants are considered, political stability has more impact in development of banking sector though, the effect of political competition on development of stock market is more than the others. Thus, different aspects of political factors which have positive effect on financial development could be used as policymakers’ tools in order to achieve more financial development and hence economic growth.
format	Thesis
qualification_name	Doctor of Philosophy (PhD.)
qualification_level	Doctorate
author	Voghouei, Hatra
author_facet	Voghouei, Hatra
author_sort	Voghouei, Hatra
title	Effects of institution, legal tradition and political factors on financial development
title_short	Effects of institution, legal tradition and political factors on financial development
title_full	Effects of institution, legal tradition and political factors on financial development
title_fullStr	Effects of institution, legal tradition and political factors on financial development
title_full_unstemmed	Effects of institution, legal tradition and political factors on financial development
title_sort	effects of institution, legal tradition and political factors on financial development
granting_institution	Universiti Putra Malaysia
granting_department	Faculty of Economics and Management
publishDate	2010
url	http://psasir.upm.edu.my/id/eprint/19470/1/FEP_2010_1_F.pdf
_version_	1747811389604364288

Effects of institution, legal tradition and political factors on financial development

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