Earlier studies on institutions and financial sector development are less informative given their failure to examine how the different forms of institutions influence countries level of domestic financial development. In this study, we re-examine the impact of institutions on financial development in the ECOWAS regional bloc over the period 1995-“2015. Employing the Augmented Mean Group (AMG) estimator, we show that overall institutions do not have a significant impact on financial development. However, after disaggregating the level of institutions into market-creating, market-legitimizing, market-stabilizing, and market-regulating, we find that only the effect of market-legitimizing institutions significantly enhances financial sector development. Thus, the impact of institutions on financial development is sensitive to the form of institutions. We discuss key implications for policy.
