By how much does conflict reduce financial development?

Arbeitspapier

Financial development is vulnerable to social conflict. Conflict reduces the demand for domestic currency as a medium of exchange and a store of value. Conflict also leads to poor quality governance, including weak regulation of the financial system, thereby undermining the sustainability of financial institutions. Conflict therefore reduces the social return to financial liberalization and other financial-sector reforms. This paper presents a theoretical model integrating the effects of conflict and financial liberalization, and then tests the model on data for 79 countries. Using an explanatory variable that measures the intensity of conflict (from low to high) the results show that conflict significantly reduces financial development, and that this negative effect increases as conflict intensifies. The paper concludes that conflict reduction is essential if financial reform is to have its full benefit for development.

Object Details

• ISBN: 9291902195
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: WIDER Discussion Paper ; No. 2002/48

Classification and Topics

• Classification: Wirtschaft ; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance ; Fiscal and Monetary Policy in Development
• Subject: financial development ; conflict ; financial regulation ; Finanzmarkt ; Kapitalmarktliberalisierung ; Sozialer Konflikt ; Theorie ; Welt

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Addison, Tony ; Chowdhury, Abdur R. ; Murshed, S. Mansoob
• Event: Veröffentlichung
• (who): The United Nations University World Institute for Development Economics Research (UNU-WIDER)
• (where): Helsinki
• (when): 2002

Further information

• Handle: http://hdl.handle.net/10419/52843
• Last update: 10.03.2025, 11:44 AM CET