“Mother Can I trust the Government?” 1 Sustained Financial Deepening - A Political Institutions View

An old debate in the economics profession centers on whether financial development leads, follows, or matters at all for economic growth. Empirical evidence in support of the view that financial development spurs growth has been accumulating at a rapid pace in recent years (see for example Levine, 1997 and 2005, Rajan and Zingales, 1998). In light of this mounting evidence as well as observed large variations in financial development across countries, one is forced to ask: why are governments not doing more in support of financial development to reap its growth and development dividends (Haber, 2010)?