Exploring the Determinants of Financial Development (Using Panel Data on Developed and Developing Countries)

Abstract

This research paper investigates the determinants of financial development. Credit to private sector is used as proxy of financial development in this study.  Panel data from 1990 to 2012 on 27 developed and 30 developing countries has been used. The main interest of the research paper is to explore how different variables or indicators affect the credit to private sector as percentage of GDP (CPS)[1]. The Hausman test is used to check weather fixed effect model is more appropriate or random effect model. Hausman test is in favor of Fixed Effect Model. The role of different important variables which effect the financial development have been found by using fixed effect model. It is concluded from empirical results that all exogenous variables except NFDI and RL have significant effect on financial development.

Keywords: Credit to Private Sector, Financial Development, Panel Data Analysis, Fixed Effect Model, Hausman Test.

[1]We use credit to private sector as percent of GDP (CPS) as proxy of financial development.