Narrow Results

The purpose of this paper is to examine the relationship between financial regulatory transparency and financial development. To achieve this goal, we collect data for 33 middle-low-income countries over the period 1998–2014 and estimate a dynamic panel by the two-step system generalized method of moments. We find that, beyond the standard factors, a higher disclosure of information about macroprudential data of financial institutions is a prerequisite for a well-developed financial system. The positive association between financial regulatory transparency and financial development implies that a transparency-based policy is mandatory to ensure the development of financial systems in middle-low-income economies. We further analyze the potential mediating role of two proxies of financial instability (banking crisis and non-performing loans (NPLs)) in explaining the effect of financial regulatory transparency on financial development. In doing so, our paper provides new evidence and insights into the long-standing discussion of the determinants of financial development.