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Economic growth and financial development: a legal explanation

Wang, Di (2011)
Ph.D. thesis, University of Birmingham.

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Abstract

This thesis presents a multi-national empirical study of the relationship between financial development and economic growth from the legal protection perspective based on both micro firm-level data and macro country-level data. Our study comprehensively examines the investor legal protection in terms of legal statues, legal enforcement and legal origins. We first examine the mechanism through which the legal system affects firm investment behaviour. The study suggests that a well-functioning legal system will benefit financial development; consequently access to external finance in the financial sector will be easier, thus firms are less sensitive to internal financing. Secondly, we investigate this relationship by taking into account of the cost of capital. The empirical study provides evidence that stronger legal protection will lead to a decrease in the cost of debt and equity, since it promotes financial development and thus funds are more available. Finally, we construct four new indices to measure financial development from the qualitative aspect rather than the quantitative aspect. The indices measure the liquidity and volatility of financial market while assessing the efficiency of banking and non-banking sector. We find that economic growth is accelerated by financial development which is exogenously determined by the functioning of legal systems.

Type of Work:Ph.D. thesis.
Supervisor(s):Dickinson, David G. and Fender, John
School/Faculty:Colleges (2008 onwards) > College of Social Sciences
Department:Department of Economics
Subjects:HB Economic Theory
K Law (General)
Institution:University of Birmingham
ID Code:608
This unpublished thesis/dissertation is copyright of the author and/or third parties. The intellectual property rights of the author or third parties in respect of this work are as defined by The Copyright Designs and Patents Act 1988 or as modified by any successor legislation. Any use made of information contained in this thesis/dissertation must be in accordance with that legislation and must be properly acknowledged. Further distribution or reproduction in any format is prohibited without the permission of the copyright holder.
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