Accessible Requires Authentication Published by De Gruyter May 21, 2010

The Link between the Economic Structure and Financial Development

Rodney Ramcharan

There is now considerable evidence that a range of institutional, legal, cultural, political and religious variables determine financial development. But economists have conjectured that the presence of diversification opportunities in the real economy can also shape the development of the financial sector. This paper finds evidence in support of this conjecture. Both the OLS estimates, and the IV results, which use instruments derived from topographical characteristics, suggest that increased economic concentration can impede financial development. Thus, financial underdevelopment might have not only socio-cultural and political causes. Risk diversification opportunities in the real economy might also be key.

Published Online: 2010-5-21

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