Openness, Institutions and Financial Development

Using dynamic panel data techniques and data from 43 developing countries during 1980 – 2001, we provide evidence which suggests that openness and institutions are important determinants of financial development. Openness, in terms of trade and capital flows, is particularly potent in promoting financial development in middle-income countries, but much weaker in low-income countries. Our findings are robust to alternative measures of financial and trade openness, as well as estimation method and sample period.