Growth, financial development, societal norms and legal institutions

This paper analyses whether societal norms help to explain cross-country differences in financial development. We analyze whether societal norms in addition to legal institutions have an impact on financial development. We address the implications of the inclusion of societal norms for the analysis of the impact of financial development on economic growth. Our main conclusions are first that societal norms are relevant in determining stock market capitalization while this is not the case for bank credit. Second, the value added of including informal institutions is limited to the extent that their (in)significance in determining financial development or, indirectly, economic growth largely coincides with that of formal institutions.