In recent years consensus has emerged that both institutional factors (such as the rule of law) as well as financial markets are important determinants of economic development. Surprisingly, the precise mechanisms through which these factors affect real outcomes are less well understood. This dissertation attempts to identify three distinct channels through which institutional factors and financial market development affect the prospects for economic development: The impact of credit market development on the size of shadow economies, the influence of legal investor protections on the composition of international portfolio inflows and the relevance of banking sector depth for optimal property rights enforcement. |