In an effort to understand the determinants of economic growth in an emerging economy, we analyze the effects of institutional reforms, wars and political events on the risk level of the Israeli stock market between 1945 and 1960. We find that the anticipation of wars did not have any effect but the end of skirmishes actually raised the risk on the stock market. Domestic political instability also increased the stock market risk. Finally we find that most legal reforms did not matter much.
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Acknowledgments We thank Abraham Lioui and Peter Temin for comments on previous drafts of this paper. Part of this article was written while Franck was staying at the Center for the Study of Public Choice at George Mason University, whom he thanks for its hospitality. Both authors gratefully acknowledge financial support from the Adar Foundation of the Economics Department at Bar Ilan University. The usual disclaimer applies.
- Emerging economy
- Stock market