OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

The Great Reversals

The Politics of Financial Development in the 20th Century

We attempt to identify and explain the broad patterns of financial development in developed countries over the twentieth century. We find that, contrary to the predictions of most existing theories, indicators of financial development do not seem monotonic over time. In particular, we find that by most measures, countries were more financially developed in 1913 than in 1980 and that a major reversal took place between 1913 and 1950. To explain this we outline a simple theory of the political economy of financial development. Empirically, our analysis suggests that the forces opposing financial development will be weaker when a country is open to international trade and capital flows. We find this to be true both in the cross-section and over time. In periods of free capital movement world-wide, a country’s level of financial development is directly related to its openness to trade. Similarly, the low frequency movements of financial development over time appear to be correlated ...


Keywords: financial systems, financial development
JEL: G18: Financial Economics / General Financial Markets / General Financial Markets: Government Policy and Regulation; G28: Financial Economics / Financial Institutions and Services / Financial Institutions and Services: Government Policy and Regulation; N20: Economic History / Financial Markets and Institutions / Economic History: Financial Markets and Institutions: General, International, or Comparative; G15: Financial Economics / General Financial Markets / International Financial Markets
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