We introduce a new, market-based and forward looking measure of political risk derived from the yield spread between a country's U.S. dollar debt and an equivalent U.S. Treasury bond. We explain the variation in these sovereign spreads with four factors: global economic conditions,...

Why doesn't capital flow into fast-growing countries? In this paper, we provide a quantitative framework incorporating heterogeneous producers and underdeveloped domestic financial markets to study the joint dynamics of total factor productivity (TFP) and capital flows. When an unexpected...

By studying intrastate branch banking reform in the United States, this paper provides evidence that financial markets substantively influence the distribution of income. From the 1970s through the 1990s, most states removed restrictions on intrastate branching, which intensified bank...

This paper investigates the welfare costs of business cycles in a heterogeneous agent, overlapping generations economy which is distinguished by idiosyncratic labor market risk. Aggregate variation arises both in terms of aggregate productivity shocks and countercyclical variation in the...

We model how lobbying by interest groups affects the level of investor protection. In our model, insiders in existing public companies, institutional investors (financial intermediaries), and entrepreneurs who plan to take companies public in the future, compete for influence over the...

Using a newly-constructed panel data set which includes annual estimates of lending rates for 47 Japanese prefectures, we analyze why interest rates converged over the period 1884-1925. We find evidence that technological innovations and institutional changes played an important role in creating...

A large body of literature has stressed the institution-development nexus as critical in explaining differences in countries%u2019 economic performance. The empirical evidence, however, has been mainly at the aggregate level, associating macro performance with measures of quality of...

We analyze the development of 49 local bond markets. Our main finding is that policies and laws matter: Countries with stable inflation rates and strong creditor rights have more developed local bond markets and rely less on foreign-currency-denominated bonds. The results suggest that "original...

We show that the development of the financial sector does not change monotonically over time. In particular, we find that by most measures, countries were more financially developed in 1913 than in 1980 and only recently have they surpassed their 1913 levels. This pattern is inconsistent with...

Is inequality harmful for economic growth? Is the underdevelopment of Latin America related to its unequal distribution of wealth? A recently emerging consensus claims not only that economic inequality has detrimental effects on economic growth in general, but also that differences in economic...