Do Financial Systems Converge?
Review of International Economics, Forthcoming
Posted: 4 Jun 2009 Last revised: 10 Mar 2011
Date Written: May 5, 2010
We apply the new panel convergence methodology developed by Phillips and Sul (Econometrica, 2007) on thirteen financial development indices from the World Bank’s Financial Development and Structure database, to test for financial system convergence across a large set of industrial and developing countries. Our results indicate that there is no convergence for either the financial systems as a whole or their major segments. Far from decreasing, the differences in the financial systems of the sample countries seemingly persist over time. These differences are more pronounced for the stock market segment and private credit by banks and less so for the bond market segment. Moreover, the convergent clubs for most indices transcend the distinction between industrial vs. developing countries.
Keywords: Financial system development, Structure, Convergence, Transition curve
JEL Classification: G10, G20, C32, C33
Suggested Citation: Suggested Citation