Do Financial Sector Reforms Lead to Financial Development? Evidence from a New Dataset

Author/Editor:

Thierry Tressel ; Enrica Detragiache

Publication Date:

December 1, 2008

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper studies whether the policies that, over the past decades, liberalized bankingsystems around the world have resulted in deeper credit markets. To measure banking sectorreforms we use a new index that tracks policy changes in five separate areas for 91 countriesover 1973-2005. We find that reforms have led to financial deepening, but only in countrieswith institutions that place checks and balances on political power. We interpret this asevidence of a complementarity between financial sector reforms and political institutions thatprotect property rights. Other country characteristics do not seem to significantly influencethe effect of banking reforms on financial development.

Series:

Working Paper No. 2008/265

Subject:

English

Publication Date:

December 1, 2008

ISBN/ISSN:

9781451871234/1018-5941

Stock No:

WPIEA2008265

Pages:

42

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