| Abstract: |
This paper offers a number of new perspectives on the finance and growth
literature. It starts by reviewing the empirical evidence on finance and
growth, highlighting studies which suggest that financial development may be
ineffective in delivering growth in the poorest of countries. The paper
proceeds to examine the likely sources of financial (under-)development and
argues that: (a) the legal origins view has been largely discredited by
lawyers; (b) government ownership of banks is much more of a symptom of weak
institutions than a cause of financial under-development. It then argues that
political economy explanations of financial development, focussing on the role
of incumbents, income and wealth inequality and the evolution of economic
institutions, are much more promising hypotheses but remain largely untested.
It calls for more work to test and develop further these ideas but warns
against over-simplified notions of politics. It ends by reviewing recent work
on the political economy origins of financial development and the politics of
financial reforms, which suggests that politics plays a greater and more
complex role than has so far been recognised by the economics literature on
finance and growth. |