Raghuram G. Rajan and Luigi Zingales explore the evolution of financial development in countries over the 20th century, challenging the notion that financial development progresses monotonically. They find that, by most measures, countries were more financially developed in 1913 than in 1980, and only recently have they surpassed their 1913 levels. This pattern contradicts theories based on time-invariant factors like a country's legal origin. Instead, they propose an "interest group" theory, suggesting that incumbents oppose financial development because it breeds competition. The theory predicts that opposition will be weaker when an economy allows both cross-border trade and capital flows. They test this theory using various indicators of financial development, finding that countries with open trade and capital flows are more likely to see financial development. The paper also discusses the historical context and the role of political forces in shaping financial development.Raghuram G. Rajan and Luigi Zingales explore the evolution of financial development in countries over the 20th century, challenging the notion that financial development progresses monotonically. They find that, by most measures, countries were more financially developed in 1913 than in 1980, and only recently have they surpassed their 1913 levels. This pattern contradicts theories based on time-invariant factors like a country's legal origin. Instead, they propose an "interest group" theory, suggesting that incumbents oppose financial development because it breeds competition. The theory predicts that opposition will be weaker when an economy allows both cross-border trade and capital flows. They test this theory using various indicators of financial development, finding that countries with open trade and capital flows are more likely to see financial development. The paper also discusses the historical context and the role of political forces in shaping financial development.