What determines financial development?

This paper studies the fundamental determinants of cross-country differences in finnancial development. Two prominent tools for addressing model uncertainty, Bayesian Model Averaging and Automatic Model Selection using PcGets, are jointly applied to investigate the financial development effects of a wide range of variables taken from various sources. The analysis suggests that the level of financial development in a country is determined by its institutional quality, macroeconomic policies, and geographic characteristics, as well as the level of income and cultural characteristics.