Institutions, Trade, and the Political Economy of Financial Development - 10.1628/093245611797215495 - Mohr Siebeck
Economics

Roland Hodler

Institutions, Trade, and the Political Economy of Financial Development

Volume 167 () / Issue 3, pp. 445-464 (20)

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We study how financial development depends on trade openness and different types of institutions. In our model the elite can repress the financial market to keep their capital costs low and to preclude ordinary citizens from producing capitalintensive goods. Financial repression thus raises the price of these goods under autarky. For most world market prices, trade openness therefore makes financial repression less attractive and increases financial development. Better political institutions increase financial development by making financial repression more costly for the elite. Better contracting institutions have countervailing effects on financial development. These predictions are consistent with the existing empirical evidence.
Authors/Editors

Roland Hodler No current data available.