Working Paper: CEPR ID: DP9597
Authors: Thorsten Beck
Abstract: This paper offers a critical survey of the literature on the role of financial deepening in economic development, focusing on the role of government. Specifically, I distinguish between the policy view that relates financial sector development to an array of necessary policies and institutions, the historic view that relates financial sector development to historic and cultural factors, and the politics view that explains financial sector development as the result of political conflicts and decisions. These three views of financial sector deepening imply a different role for government. I discuss examples from the developed and developing world and repercussions for current reform discussions.
Keywords: Economic Growth; Financial Crisis; Financial Development; Government Policies
JEL Codes: G1; G2; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial development (O16) | economic growth (O49) |
| financial deepening (O16) | better resource allocation (D61) |
| financial deepening (O16) | increased investment (E22) |
| financial deepening (O16) | enhanced productivity (O49) |
| excessive financial development (F65) | increased fragility (F12) |
| financial deepening (O16) | economic growth (O49) |
| government policies (H59) | financial fragility (G51) |