A country's level of financial development and the legal environment in which financial intermediaries and markets operate critically influence economic development. In countries whose financial sectors are more fully developed and whose legal systems protect the rights of outside investors,...

Analysis of a panel data set for 1976-98 shows that on balance stock markets and banks positively influence economic growth; findings that do not result from biases induced by simultaneity, omitted variables, or unobserved country-specific effects

Economies with better developed financial sectors have a comparative advantage in manufacturing industries. A two-sector model shows the sector with large scale economies profiting more than the other from a well-developed financial sector. In countries with higher levels of financial...