Working Paper: NBER ID: w16462
Authors: Panicos O. Demetriades; Peter L. Rousseau
Abstract: We explore the role of government in the nexus of finance and trade starting from the earliest days of organised finance in England and then broadening the analysis to 84 countries from 1960 to 2004. For 18th century England, we find that the government expenditures and international trade did have a positive long-run effect on financial development when measured as the value of private loans issued at the Bank of England. For the wider panel of countries and more recent data, we find that government expenditures and trade have positive effects on financial development for countries that are in the mid-ranges of economic development as measured by their per capita incomes, but have little effect for poor countries and strongly negative effects for the wealthiest ones.
Keywords: No keywords provided
JEL Codes: N23; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Government Expenditure + Trade Openness + Income Level (F40) | Financial Development (O16) |
| Government Expenditure (H59) | Private Loans (H81) |
| Trade (F19) | Private Loans (H81) |
| Government Expenditure (H59) | Crowding Out Effect on Private Loans (E51) |
| Government Expenditure (H59) | Financial Development (O16) |
| Trade Openness (F43) | Financial Development (O16) |
| Government Expenditure (H59) | Trade Openness (F43) |
| Trade Openness (F43) | Government Expenditure (H59) |
| Government Expenditure + Trade Openness (F41) | Financial Development (O16) |