While financial liberalization has in general favorable effects, reforms in countries with poor regulation is often followed by financial crises. We explain this variation as the outcome of lobbying interests capturing the reform process. Even after liberalization, market investors must rely on...

This paper reviews the theoretical and empirical literature on links between domestic financial development and economic growth. It starts with the pioneers in this field and then classifies two main schools favouring liberal financial regimes. First McKinnon and Shaw advocated financial...

Entry requires external finance, especially for less wealthy entrepreneurs, so poor investor protection limits competition. We model how incumbents lobby harder to block access to finance to entrants when politicians are less accountable to voters. In a broad cross-section of countries and...

We develop a model of endogenous lobby formation in which wealth inequality and political accountability undermine entry and financial development. In- cumbents seek a low level of effective investor protection to prevent potential entrants from raising capital. They succeed because they can...