While it is clear that financial depth has a positive effect on economic growth, the questions of what determines financial development and how to develop financial markets remain imperfectly understood.More specifically, economists still have an insufficient understanding of the following key issues.What brings about the emergence and development of financial markets?What are the reasons why different financial structures, bank-based or market-based, exist in countries where similar levels of economic development have been reached?What accounts for the differences in the levels of financial development in countries like the OECD member countries which have similar income levels, and geographic conditions?The world witnessed the worst financial crisis and climate crisis of our age during the period 2007-09.This highlights the significance of the research into what is essential to the development of financial markets and what is key to develop carbon markets for tackling climate change.Against this background, my book seeks to investigate the fundamental determinants of the development of financial markets and carbon markets.It starts with a general examination of the determinants of financial development in Chapter 2 and moves on to specific studies in the following chapters.Chapters 3 and 4 examine two specific determinants of financial development in the context of globalization.To be more specific, Chapter 3 provides an exhaustive analysis of the causality between aggregate private investment and financial development from the economic point of view while Chapter 4 explores the determinants of financial development from a political perspective, namely, the impact of institutional improvement on financial development.Chapter 5 looks at what induces governments to undertake reforms aimed at boosting financial development.Chapter 6 is concerned with the development of carbon markets, which is a newly developed/recently emerging area for both research and practice.It examines what could explain the uneven development of carbon markets in developing countries from a geographic point of view, with an aim of encouraging further research into other determinants of carbon market development.This book constitutes a unique addition to the expanding literature in this field, and its contribution is highlighted by its title.It could be xvii xviii Preface the first comprehensive book of this kind to explore this subject systematically by using various recently developed econometric methods.It provides a very general but comprehensive overview of modern financial development theory and incorporates cutting-edge research in this field, along with a huge number of relevant literature citations.This book also presents the latest thinking on how to develop financial and carbon markets.The findings of this book have rich implications for the conduct of macroeconomic policies in developing countries in an integrated global economy.This book is suitable for the students of financial development and climate change at the advanced undergraduate or graduate level, for economists and applied econometricians who are interested in economic and financial development, financial liberalization and climate change and for policy-makers and government agencies.This research topic will continue to be of great interest to academics and practitioners across the globe, which is underlined by the number of recent international conferences and symposia devoted to the financial and climate crises.I would like to avail myself of this opportunity to extend my sincere thanks to all those who have made my research into these issues and my writing of this book a truly fulfilling and unforgettable experience.It goes without saying, or it should, that there are various people without whom this book would never have been possible.A great debt of gratitude is owed to my PhD supervisor, Professor Jonathan Temple, for giving me his time, insights, enthusiasm, incredible help and constant support.His remarkable insights into various development issues, his erudition in economics and his willingness to discuss and blue-sky with me, have enriched both my academic life and this book.Also, high tribute should be paid to my Centre Director at Cambridge University, Dr Terry Barker, who has kindly advised me on various climate change issues, for example, the last chapter of this book.His
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