In particular, many factors may be correlated with the level of financial development of a country, so we want to make sure that the level of financial development is not simply standing in for something else. The differences in financial development, for example, can arise from historical, political, cultural, and legal reasons.
There is a well-developed literature emphasizing, for instance, that the nature of a country's legal system and the manner in which laws are enforced can have an effect on the development of its financial system. 9 Similarly, other country-specific factors also might have an influence on how financial institutions and markets behave.