Monetary Economics-Financial Economics-
Farshid Ahmadi Farsani; Abdonaser Derakhsan; Alireza Abroud
Abstract
Present study examines impact of governance quality on financial sector development using a selected empirical dataset from the Middle Eastern countries for the period 1996-2022. For this purpose, overall governance quality index and six dimensions of governance quality index (dimensions of accountability, ...
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Present study examines impact of governance quality on financial sector development using a selected empirical dataset from the Middle Eastern countries for the period 1996-2022. For this purpose, overall governance quality index and six dimensions of governance quality index (dimensions of accountability, political stability and absence of violence/terrorism, government efficiency, regulatory quality, control of corruption, rule of law) on financial sector development are estimated using a quantile panel regression approach. Reason for using this technique is based on the argument that impact of governance quality is conditional on existing level of financial development and that sovereign financial development policies should be adjusted in countries with low, medium, and different levels to be effective. The empirical estimation based on quantile regression showed that overall governance quality index and its different dimensions have positive and significant effects in most quantiles. Furthermore, in most cases, the impact of governance quality is greater in magnitude in the higher quantiles. The empirical findings of this study show that differences in improvement of governance institutions explain differences between countries in terms of financial sector development. Based on conclusions drawn from findings; it is suggested that authorities should prepare groundwork for development of financial systems by expanding urbanization and facilitating entry into global village.
