Endogenous Political Institutions and Financial Development: This working paper is expected to appear in: Handbook of Finance and Development edited by Thorsten Beck and Ross Levine (Edward Elgar Publishing)

textabstractThis chapter surveys the literature on the political economy of finance. This field offers three main insights. First, it highlights the importance of the role of political institutions in financial development. Second, it shows how the distribution of political power in society drives the prevailing set of contracting institutions and affects capital allocation and access to finance in developed and developing economies. Third, it argues that recognizing the endogenous nature of political institutions is crucial for our understanding of the evolution and functioning of financial systems