Indicators of the development of the financial sector do not improve monotonically over time. In particular, we find that by most measures, countries were more financially developed in 1913 than in 1980 and only recently have they surpassed their 1913 levels. This pattern cannot be explained by structural theories that attribute cross-country differences in financial development to time-invariant factors, such as a country's legal origin or culture. We propose an "interest group" theory of financial development where incumbents oppose financial development because it breeds competition. The theory predicts that incumbents' opposition will be weaker when an economy allows both cross-border trade and capital flows. This theory can go some way in accounting for the cross-country differences and the time series variation of financial development. When we recognize that different kinds of institutional heritages afford different scope for private interests to express themselves, we obtain a...

This paper investigates whether the industrial relations climate in Indian states has affected the pattern of manufacturing growth in the period 1958-92. We show that states which ammended the Industrial Disputes Act in a pro-worker direction experienced lowered output, employment, investment and productivity in registered or formal manufacturing. In contrast, output in unregistered or informal manufacturing increased. Regulating in a pro-worker direction was also associated with increases in urban poverty. This suggests that attempts to redress the balance of power between capital and labor can end up hurting the poor. JEL: H0,H1,I3,J5,K2,L5,L6,O2,O4 I.

I review empirical research on the relation between capital markets and financial statements.The principal sources of demand for capital markets research in accounting are fundamental analysis and valuation, tests of market efficiency, and the role of accounting numbers in contracts and the political process.The capital markets research topics of current interest to researchers include tests of market efficiency with respect to accounting information, fundamental analysis, and value relevance of financial reporting.Evidence from research on these topics is likely to be helpful in capital market investment decisions, accounting standard setting, and corporate financial

This essay offers a rational political explanation for the notorious inefficiency of pork barrel projects with an optimization model of legislative behavior and legislative institutions. The model em-phasizes the (economically arbitrary, from a welfare point of view) importance of the geographic incidence of benefits and costs owing to the geographic basis for political representation. We explore the implications of a legislator's objective function and derive conditions under which a representative legislature will select an omnibus of projects each of which exceeds the efficient scale. The inefficiency of public decision making has long been a concern for students of public policy. Models of bureaucratic behavior, legis-lative institutions, interest-group influence, vote-maximizing politi-cians, and fiscal illusion all point toward sources of bias in these nonmarket contexts.! Yet none has established why a cooperative legislature would stand for policies which are Pareto dominated.

This paper investigates private-interest, public-interest, and political-institutional theories of regulatory change to analyze state-level deregulation of bank branching restrictions. Using a hazard model, we find that interest group factors related to the relative strength of potential winners (large banks and small, bank-dependent firms) and losers (small banks and the rival insurance firms) can explain the timing of branching deregulation across states during the last quarter century. The same factors also explain congressional voting on interstate branching deregulation. While we find some support for each theory, the private interest approach provides the most compelling overall explanation of our results.

Outside the U.S. and the U.K., large corporations usually have controlling owners, who are usually very wealthy families. Pyramidal control structures, cross shareholding and super-voting rights let such families control corporations without making a commensurate capital investment. In many countries, a few such families end up controlling considerable proportions of their countries ’ economies. Three points emerge. First, at the firm level, these ownership structures, because they vest dominant control rights with families who often have little real capital invested, permit a range of agency problems and hence resource misallocation. If a few families control large swaths of an economy, such corporate governance problems can attain macroeconomic importance – affecting rates of innovation, economy-wide resource allocation, and economic growth. If political influence depends on what one controls, rather than what one owns, the controlling owners of pyramids have greatly amplified political influence relative to

(Article begins on next page) The Harvard community has made this article openly available. Please share how this access benefits you. Your story matters.

This paper contrasts direct election with political appointment of regulators. When regulators are appointed, regulatory policy becomes bundled with other policy issues the appointing politicians are responsible for. Because voters have only one vote to cast and regulatory issues are not salient for most voters, there are electoral incentives to respond to stakeholder interests. If regulators are elected, their stance on regulation is the only salient issue so that the electoral incentive is to run a pro-consumer candidate. Using panel data on regulatory outcomes from U.S. states, we Þnd new evidence in favor of the idea that elected states are more pro-consumer in their regulatory policies.

in New York City and set an ambitious agenda for improving human welfare. These goals, which are elaborated at

Abstract not found