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Does related lending have positive or negative effects on the development of banking systems? We analyze a unique cross-country data set covering 74 countries from 1990 to 2007, and find that related lending, on average, does not have any effect on the growth of credit. We do find, however, that there are conditional relationships: related lending tends to retard the growth of banking systems when rule of law is weak, whereas it tends to promote the growth of banking systems when rule of law is strong. We also find that related lending appears to be associated with looting when banks are owned by non-financial firms, but that it does not do so when non-financial firms are owned by banks. Our results indicate that whether related lending is positive or pernicious depends critically on the institutional context in which it takes place; there is no single "best policy" regarding related lending. These findings are robust to alternative specifications, including IV regressions. [ABSTRACT FROM AUTHOR]

The privatization of Japan’s postal saving system has been a politically charged issue since it first started being debated in the late 1980s, and yet it provides a useful setting in which political economy of economic policy-making can be investigated empirically. Analyzing the pre-election survey of the House of Representatives candidates in 2003 and also the voting patterns of Liberal Democratic Party (LDP) members on a set of postal privatization bills in 2005, this paper asks why some politicians fiercely opposed (or supported) privatization. The econometric results show that multiple factors are important: the private interests of local postmasters and postal workers, politicians’ fundamental ideologies on the size and role of government, party disciplines and factional affiliations within the LDP. Legislative behavior on postal privatization in Japan, thus, turns out to be one case in which legislative behavior is more complex than any single theory predicts. [ABSTRACT FROM AUTHOR]