Financial development and prehistoric geographical isolation: global evidence

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Using cross-country differences in the degree of isolation before the advent of technologies in sea and air transportation, we assess the relationship between geographical isolation and financial development across the globe. We find that prehistoric geographical isolation has been beneficial to development because it has contributed to contemporary cross-country differences in financial intermediary development. The relationship is robust to alternative samples, different estimation techniques, outliers and varying conditioning information sets. The established positive relationship between geographical isolation and financial intermediary development does not significantly extend to stock market development.