Political stability and financial development: An empirical investigation

Financial development; Financial liberalization reforms; Government effectiveness; Political stability; Political structure; Finance; Economics and Econometrics

Abstract :

[en] The significance of political stability as a fundamental political institution within a country is widely acknowledged. However, the intricate interplay between political stability and the development of financial institutions and markets remains inadequately explored. Through an analysis encompassing 123 countries spanning the temporal interval of 1980 to 2017, a discernible pattern emerges: heightened levels of political stability substantively foster the advancement of financial development. This positive association is pronounced in countries characterized by greater government effectiveness, those enacting financial liberalization reforms, and those exhibiting a more democratic political structure. The results are robust to alternative measures of political stability, controlling for country heterogeneity, a two-stage least squares technique using internally generated instruments to address endogeneity issues, among several other robustness tests. Our results emphasize that countries should prioritize the creation of a more politically stable environment, as it not only improves growth prospects, but also creates a climate of confidence for economic agents to actively engage in financial markets.

Disciplines :

Macroeconomics & monetary economics
Finance

Author, co-author :

Chletsos, Michael; Department of Economics, University of Piraeus, Piraeus, Greece

SINTOS, Andreas ; University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Economics and Management (DEM) ; Department of Economics, University of Piraeus, Piraeus, Greece

External co-authors :

yes

Language :

English

Title :

Political stability and financial development: An empirical investigation

Publication date :

April 2024

Journal title :

Quarterly Review of Economics and Finance

ISSN :

1062-9769

Publisher :

Elsevier B.V.

Volume :

Pages :

252 - 266

Peer reviewed :

Peer Reviewed verified by ORBi

Additional URL :

https://api.elsevier.com/content/article/PII:S1062976924000206?httpAccept=text/xml

Available on ORBilu :

since 03 March 2024

Statistics

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491 (123 by Unilu)

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