The essays in this volume employ the insights and techniques of political science, economics and history to provide a fresh answer to this question.

Economists have long maintained that a well-developed and functioning financial system is a vital prerequisite to economic growth. Countries with robust banking sectors and securities markets--that is, countries in which credit cards, loans, mortgages, and the ability to issue stocks and bonds are available to a broad swath of consumers and businesses--are more prosperous than countries that restrict such access to a favored elite. What is less clear is why some countries develop better financial systems than others. The essays in this volume employ the insights and techniques of political science, economics, and history to provide a fresh answer to this question. While scholarly tradition points to the colonial origin of a country's legal system as the most important determinant of the health of its financial system, this volume points instead to a country's political institutions--its governmental structures and the rules of the political game--as the key. Specifically, the openness and competitiveness of a country's political system tends to reflect itself in the openness and competitiveness of its financial system.

This chapter surveys the literature on the political economy of finance. This field offers three main insights. First, it highlights the importance of the role of political institutions in financial development. Second, it shows how the distribution of political power in society drives the prevailing set of contracting institutions and affects capital allocation and access to finance in developed and developing economies. Third, it argues that recognizing the endogenous nature of political institutions is crucial for our understanding of the evolution and functioning of financial systems.

A PDF version of this book is available for free in open access via the OAPEN Library platform, www.oapen.org. This book examines the emergence of both financial markets and carbon markets, and provides an in-depth investigation on the fundamental determinants of financial development.

Only a minority of countries have succeeded in establishing a developed financial system, despite widespread financial liberalization. Confronted with this finding, the political institutions view claims that sustained financial deepening is most likely to take place in institutional environments where governments effectively impose constraints on their own powers in order to create trust. This paper identifies over 200 post-1960 episodes of accelerations in financial development in a large cross-section of countries. We find that the likelihood of an acceleration leading to sustained financial development increases greatly in environments that have high-quality political institutions.

"The essential role institutions play in understanding economic development has long been recognised and has been closely studied across the social sciences but some of the most high profile work has been done by economists many of whom are included in this collection covering a wide range of topics including the relationship between institutions and growth, educational systems, the role of the media and the intersection between traditional systems of patronage and political institutions. Each chapter covers the frontier research in its area and points to new areas of research and is the product of extensive workshopping and editing. The editors have also written an excellent introduction which brings together the key themes of the handbook. The list of contributors is stellar (Steven Durlauf, Throsten Beck, Bob Allen,and includes a diverse mix of Western and non Western, male and female scholars)"