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Working Paper
Trade liberalization and the politics of financial development
A well-developed financial system enhances competition in the industrial sector by allowing easier entry. The impact varies across industries, however. For some, small changes in financial development quickly induce entry and dissipate incumbents? rents, generating strong incentives to oppose improvement of the financial system. In other sectors incumbents may even benefit from increased availability of external funds. The relative strength of promoters and opponents determines the equilibrium level of financial system. This may be perturbed by the effect of trade liberalization on the ...