Does the size and quality of the government explain the size and efficiency of the financial sector?

This study examines the impact of two dimensions of thegovernment, namely, size and quality, on two dimensions of thefinancial sector, size and efficiency, in a cross section of 71economies. The study finds that while increased quality of thegovernment as measured by governance and legal origin positivelyinfluence both financial sector size and efficiency, that the size ofthe government proxied by government expenditure andgovernment ownership of banks, has a negative effect on financialsector efficiency, however, a positive impact on financial sector size,particularly in the low income economies.