This 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.

Banking sector, financial development, law and finance, political economy, political institutions, political power, stock markets, suffrage institutions
Analysis of Collective Decision-Making (jel D7), Financial Economics: General (jel G00), Financial Crises (jel G01), Law and Economics: General (jel K00), Financial Markets; Saving and Capital Investment (jel O16), Political Economy (jel P16)
Rotterdam School of Management (RSM), Erasmus University

Lambert, T, & Volpin, P.F. (2017). Endogenous Political Institutions and Financial Development. Retrieved from