IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2006-035.html
   My bibliography  Save this paper

Does Economic Diversification Lead to Financial Development? Evidence From topography

Author

Listed:
  • Mr. Rodney Ramcharan

Abstract

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.

Suggested Citation

  • Mr. Rodney Ramcharan, 2006. "Does Economic Diversification Lead to Financial Development? Evidence From topography," IMF Working Papers 2006/035, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2006/035
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=18644
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hattendorff, Christian, 2015. "Economic concentration and finance: Evidence from Russian regions," BOFIT Discussion Papers 18/2015, Bank of Finland, Institute for Economies in Transition.
    2. Nathan Nunn & Diego Puga, 2012. "Ruggedness: The Blessing of Bad Geography in Africa," The Review of Economics and Statistics, MIT Press, vol. 94(1), pages 20-36, February.
    3. Claessens, Stijn & Perotti, Enrico, 2007. "Finance and inequality: Channels and evidence," Journal of Comparative Economics, Elsevier, vol. 35(4), pages 748-773, December.
    4. Hattendorff, Christian, 2015. "Economic concentration and finance: Evidence from Russian regions," BOFIT Discussion Papers 18/2015, Bank of Finland Institute for Emerging Economies (BOFIT).
    5. repec:zbw:bofitp:2015_018 is not listed on IDEAS
    6. Rami Mohammad Abu Wadi & Ala' G. Bashayreh, 2018. "Economic Diversification in Bahrain," International Journal of Economics and Financial Issues, Econjournals, vol. 8(4), pages 120-125.
    7. Jaimovich, Esteban, 2011. "Sectoral differentiation, allocation of talent, and financial development," Journal of Development Economics, Elsevier, vol. 96(1), pages 47-60, September.
    8. repec:bof:bofitp:urn:nbn:fi:bof-201505201212 is not listed on IDEAS
    9. Hattendorff, Christian, 2014. "Natural resources, export concentration and financial development," Discussion Papers 2014/34, Free University Berlin, School of Business & Economics.
    10. Sèna Kimm Gnangnon, 2022. "Export diversification and financial openness," International Economics and Economic Policy, Springer, vol. 19(4), pages 675-717, October.
    11. Wenni Lei & Yuwei Luo, 2022. "Institutions Rule in Export Diversity," Sustainability, MDPI, vol. 14(18), pages 1-14, September.
    12. Sèna Kimm Gnangnon, 2019. "Effect of Export Upgrading on Financial Development," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 10(03), pages 1-37, October.
    13. Gnangnon, Sèna Kimm, 2022. "Effect of the utilization of non-reciprocal trade preferences offered by the QUAD countries on beneficiary countries' economic complexity," Journal of the Japanese and International Economies, Elsevier, vol. 65(C).
    14. Anna Mishura & Svetlana Ageeva, 2016. "Regional distribution of bank institutions in Russia: Role of state and education," ERSA conference papers ersa16p167, European Regional Science Association.
    15. Wim Naudé & Riaan Rossouw, 2008. "Export Diversification and Specialization in South Africa: Extent and Impact," WIDER Working Paper Series RP2008-93, World Institute for Development Economic Research (UNU-WIDER).
    16. repec:zbw:bofitp:urn:nbn:fi:bof-201505201212 is not listed on IDEAS
    17. KAMGNA, Severin Yves, 2007. "Diversification économique en Afrique centrale : Etats des lieux et enseignements [Economic diversification in central Africa]," MPRA Paper 9602, University Library of Munich, Germany.
    18. Ivar Kolstad & Arne Wiig, 2014. "Diversification and democracy," CMI Working Papers 9, CMI (Chr. Michelsen Institute), Bergen, Norway.
    19. Mohammad W. Alomari & Ala' G. Bashayreh, 2020. "Modeling the Exports Diversification in the Oil Countries Growth: The Case of Gulf Cooperation Council Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 10(3), pages 119-129.
    20. Camilleri, Silvio John & Falzon, Joseph, 2013. "The Challenges of Productivity Growth in the Small Island States of Europe: A Critical Look of Malta and Cyprus," MPRA Paper 62489, University Library of Munich, Germany.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:2006/035. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.