Does Economic Diversification Lead to Financial Development? [electronic resource] : Evidence From topography, Ramcharan, Rodney.

Ramcharan, Rodney.
Washington, D.C. : International Monetary Fund, 2006.
IMF eLibrary
IMF Working Papers; Working Paper No. 06/35.
IMF Working Papers; Working Paper No. 06/35
Government document
1 online resource (45 p.)
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Banks. (search)
Calibration. (search)
Choice of Technology. (search)
Correlation. (search)
Correlations. (search)
Covariance. (search)
Cross-country variation. (search)
Deforestation. (search)
Desertification. (search)
Earth science. (search)
Earthwork. (search)
Econometrics. (search)
Economic geography. (search)
Economic growth. (search)
Empirical framework. (search)
Equation. (search)
Financial sector. (search)
Financial systems. (search)
Functional form. (search)
Geographic distribution. (search)
Geographic variables. (search)
Geographical variables. (search)
Grasslands. (search)
Heteroscedasticity. (search)
Industrialization. (search)
Instrumental variables. (search)
International earth science information network. (search)
Land area. (search)
Land elevation. (search)
Logarithm. (search)
Measurement error. (search)
Mortgages. (search)
Other Depository Institutions. (search)
Plateaus. (search)
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Statistics. (search)
Survey. (search)
Topography. (search)
Belgium. (search)
El Salvador. (search)
Iran, Islamic Republic of. (search)
Nepal. (search)
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An influential theoretical literature has observed that economic diversification can reduce risk and increase financial development. But causality operates in both directions, as a well functioning financial system can enable a society to invest in more productive but risky projects, thereby determining the degree of economic diversification. Thus, ordinary least squares (OLS) estimates of the impact of economic diversification on financial development are likely to be biased. Motivated by the economic geography literature, this paper uses instruments derived from topographical characteristics to estimate the impact of economic diversification on the development of finance. The fourth estimates suggest a large and robust role for diversification in shaping financial development. And these results imply that, by impeding financial sector development, the concentration of economic activity common in developing countries can adversely affect financial and economic development.
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Ramcharan, Rodney.
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