The Impact of Institutional Quality Indices on Financial Development(Case Study: Eurasian Region Developing Countries)

Financial development is one of the important issues that has always been of particular importance to the economy of any country. It is impossible to achieve economic growth and development without efficient financial institutions and adequate financial resources. The determinants of the level of financial development in countries include qualitative factors including political environment, institutional, legal and information infrastructures, regulation and supervision. Although there are many factors affecting financial development and there are many studies and theories in this area, what has been the least considered is the impact of qualitative and institutional factors on financial development. The main purpose of this study is to investigate a group of important non-economic and qualitative factors on financial development. To this end, we examined the impact of the average of 3 indices ICRG as an indicator of quality of institutions, the POLITY IV index of democracy, and the property rights, on banking indices as an indicator of financial development for 27 developing countries in Eurasia during the years 1999-2015. Based on this, a panel data econometric model was defined and estimated by the GMM method. The results of this study indicate that high quality of institutions, higher democracy and protection of property rights have a positive and significant effect on financial development in the countries studied.