A1494
Title: Political competition, democracy and financial development: Cross-country evidence
Authors: Leone Leonida - King's College London (United Kingdom)
Dawit Zerihun Assefa - Neoma Business School (France)
Alfonsina Iona - Queen Mary University of London (United Kingdom) [presenting]
Abstract: Despite extensive research in politics and finance, the impact of political competition on countries' financial development has remained underexplored. The hypotheses of prior studies are integrated into a single reduced-form model to examine the relationship between political competition and financial development. These hypotheses are tested using a sample of over 100 countries from 1980 to 2020, employing both annual data and five-year averages. Findings show that in OECD countries, the relationship between political competition and financial development follows an S-shaped curve, while the entire sample exhibits a U-shaped pattern. These results suggest that in democratic countries, mechanisms similar to those described in a prior study prevail, whereas in autocratic countries, a political replacement effect akin to that proposed in another study is at play. The conclusions are robust across various model specifications, econometric estimators, and measures of financial development and political competition.
