Politics and Financial Development: Is Populist Leadership Important?

Abstract

Political factors have an essential role to play in financial development. Populism is one of them that still has not captured sufficient attention in the existing body of literature. This paper aims to address this gap based on empirical data analysis from 59 countries worldwide over the years 1997–2021. Obtained results show that populist political leadership has had beneficial effects on financial institutions development, while being significantly detrimental for financial markets development. Additionally, increased level of development of the banking sector raised the possibility of electoral success of populist political movements, while the opposite was true for stock and debt securities markets. The proportion of female legislators in national parliaments and rule of law acted as stimulators of financial institutions development. The findings also show that central government debt, population and research and development expenditure constituted significant catalysts of financial markets development.