Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/52843
Authors: 
Addison, Tony
Chowdhury, Abdur R.
Murshed, S. Mansoob
Year of Publication: 
2002
Series/Report no.: 
WIDER Discussion Papers // World Institute for Development Economics (UNU-WIDER) 2002/48
Abstract: 
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.
Subjects: 
financial development
conflict
financial regulation
JEL: 
O16
O23
ISBN: 
9291902195
Document Type: 
Working Paper

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