Influence of Non-Economic Factors on the Formation and Development of the Design of Financial Systems

The purpose of this scientific work is to investigate the impact of non-economic factors on the design of financial systems, focusing on the concept of institutional quality, which is measured using six indices according to the World Bank's methodology. To assess this impact, we utilized data from 1996 to 2022 for a wide range of countries, grouped into five clusters based on per capita income. The comparative analysis of these country clusters revealed a direct and consistent relationship between per capita income dynamics and financial development with changes in institutional quality. It also highlighted the significant influence of this relationship on the structural features of national financial systems. The study demonstrates that institutional quality is the starting point of this entire process, determining the effectiveness of the link between financial development and economic growth through changes in the financial structure. The findings confirm the convergence of financial development levels among countries with different financial system structures and legal traditions, provided they maintain high-quality institutions. The study underscores the importance of institutional quality in minimizing the consequences of structural distortions in the financial system and addressing gaps in financial and economic development. These results are crucial for economic policymakers in developing countries and those with low per capita incomes. Doi: 10.28991/ESJ-2024-08-05-08 Full Text: PDF