International Evidence on Corporate Governance: Lessons for Developing Countries

Abstract

This paper examines the relation between financial, corporate and legal systems and economic performance in different countries. It reviews international comparisons that use large, cross-country databanks, including developing countries. These suggest a strong association of financial development with economic growth and an important role for regulation in the development of financial institutions. However, this literature does not determine which types of institution or regulation are most relevant to economic growth, particularly in its early stages. A recent theoretical literature points to a relation between the types of financial institutions and forms of economic activity with some systems being more closely associated with the industrial base of particular countries. These theories suggest that systems may be related to stages of economic development. The paper summarises a first empirical study that reports an association between financial institutions, types of activity and stages of economic development. The paper considers the implications of these relations for the design of financial and corporate systems in countries at different stages of their development. It argues for diversity in systems and regulation that encourages competition between rather than harmonisation of systems.