Do societal values influence financial development? New evidence on the effects of post materialism and institutions on stock markets

In this paper we present new evidence on the effects of social values on stock market development. Using panel data for a heterogeneous set of 43 countries, we use the Inglehart post materialism index to identify the relation between the degree of post materialism and the size of stock markets. Controlling for a range of macro-economic and institutional country characteristics and accounting for endogenous relationships between the main variables of interest, we find a robust and sizeable positive effect of post materialism on stock markets. Legal, political and democratic institutions also promote the development of stock markets. Furthermore, we find that the effect of post materialism consists of a direct effect and a substantial indirect effect that runs via several types of institutions. This latter finding indicates that it is important to account for interrelationships between social values and institutions when estimating their full economic effects.