We introduce financial frictions in a two sector model of international trade with heterogeneous agents. The level of specialization in the economy (economic development) depends on the quality of financial institutions. Underdeveloped financial markets prohibit an economy to specialize in...

The paper tests the hypothesis of a positive impact of democratization on growth, economic development and changes in well-being. We construct an empirical model to explain the impact of political institutions (democracy), economic institutions, financial market efficiency, scientific...

We study how financial market effciency affects a measure of diversification of output across industrial sectors borrowed from the portfolio allocation literature. Using data on sector-level value added for a wide cross section of countries and for various levels of disaggregation, we construct...