Economics

I would like to thank my instructor for academic support and my family for moral support while undertaking this research.

Abstract
The 2008 economic crisis had negative effects on financial development and led to trillion dollar losses. Financial development has taken centre stage in the aftermath of the crisis as nations organisation and individuals try to improve their financial positioning. However, these efforts are limited by the absence of information on the variables that influence financial development in the post 2008 economic crisis environment. Through analysis of secondary data collected from reliable sources coupled with quantitative statistical analysis of data from different nations, the study shows that the models of financial development before and after the financial crisis are different. The variables economic growth, investment, external debt and inflation were affected differently by the economic crisis that caused significant changes in the model of financial development. This implies that the post crisis financial environment has to be reviewed further to develop a deeper understanding of the leading variables and guide policymaking. Importantly, the findings show that there are various methodological considerations that affect research n financial development. More effort should be channelled to devising analytical methods that do not depend on the independence of the predictor variables to improve the validity and reliability of financial development models. Moreover, the practical significance and implications of the findings have to be addressed as per the nature of the expected inputs.  A recommendation is made to the effect that nations have to allocate additional financial and time resources to financial reforms and recovery as avenues to improving financial development. Importantly, investors and governments have to appreciate the fact that the post crisis environment is significantly different from the financial environment before the crisis.
Chapter One Introduction

This chapter aims at providing a background to the problem that will be addressed in the study. This chapter will highlight the background of the problem the problem statement research objectives rationale of the study research and the overall significance of the study. This chapter aids appreciation of the need for the study and its significance or benefit to research and policy making.

1.1. Problem Background
The 2008 global economic crisis outlines the interdependence between economies that is becoming a key issue in modern economics. The crisis clearly showed that nations cannot afford to distance themselves from others failures since they will inevitably be affected. This is one of the reasons for the increase in the number of studies that have sought to determine variables that influence financial development. It is noteworthy that national financial development is different from its economic growth though there is an established relationship between these performance indicators. However, for individuals, institutions and nations to support development activities they must have access to funds (Liebscher, 2006). Financial development is therefore an essential prerequisite for the development of better infrastructure and provision of quality social amenities. The need to better human life and understand the uncertainties that influence financial markets and global economies has also fuelled research into the variables that affect financial development (Ang, 2008).
Globalization has played a vital role in shaping the dimensions of economic development and growth in modern economies. Pre-civilization economies strengthened their armies to conquer their neighbours and expand their area of control. This is the same idea that European nations had when colonizing nations that were rich in natural resources (Arner, 2007 Lown, Peristiani,  Robinson, 2006). However, the dynamics have changed considerable mainly due to the effect of globalization which has led to increased availability of knowledge (Rodrik,  Subramanian, 2009). Creating economic and financial environments that allow for investment, are defined by fewer restrictions and allow for movement of labour are examples of strategies that form the rationale in trading blocks. This is a result of the realization that the levels of competition between nations has increased dramatically and pooling resources may come in handy (Zoli, 2007). Development in technology and additional refinements of approaches to operations has led to an increase in competition among nations as they increasingly target the same market niche. Clearly, with the shifts in positioning of nations there has been a need to review variables that may result in greater levels of financial development (Mammana,  Michetti, 2008). Nations have improved their information technology strategies and their internal ability for instance higher education as avenues to attracting investors (Brown, 2009). Thus changes in the external environment may affect the variables that are critical in influencing financial development and this may be the case for the 2008 economic crisis.

The 2008 economic crisis may have started as an American problem but it was soon apparent that such an assumption was inaccurate (Knight, Hossain,  Christopher, 2009). Liquidity shortfalls within the American banking system that were a result of overpriced assets notably houses triggered the crisis. It is however evident that this is not the cause rather is a trigger (Agnor,  Montiel, 2008). Analysts state that the problem had to surface eventually and it took the liquidity problems to reveal some weaknesses and impractical assumptions made by the American banking and financial systems (Chan,  Hoi, 2008). This American crisis soon caught up with developed and developing nations and some for instance Greece are still trying to find a way out of the effects of the crisis. The crisis is a reminder of the global nature of financials and the high levels of uncertainty that characterize the financial markets (Knight, Hossain,  Christopher, 2009). Analysts state that the effects of the crisis on the financial market cannot be accurately evaluated (Smith,  Hargroves, 2009). Various stock markets were facing the possibility of going under due to mistakes that were either within or without their control.

A rethink of international financial systems is inevitable in the aftermath of the global financial crisis. While many nations have already taken steps to improve and address loopholes in their financial systems, a rethink of international financial system is unavoidable (Schuurman, 2009). Though the specific changes may not be clear for they require consensus from specialists and the political will to change, these changes may have considerable influence on financial development (McAlister, Srinivasan,  Kim, 2007). Another area that may have to be addressed is banking and finance which was the core of the problem. Many specialists in the financial sectors are of the view that increasing capital and liquidity requirements may come in handy in mitigating risks that can result in the recurrence of the crisis (Yung-Shuan,  Chin-Chang, 2009). Such changes have a direct effect on the banking and financial systems and may influence financial development in the short and medium term.

1.2. Problem Statement
Interest in understanding the variables that influence financial development has persisted throughout human history. The important role played by commercialization and financial activities in providing tax revenues and an environment makes it fundamental to the existence of economies. Nations that have fully appreciated the role of financial development in improving the quality of life and the economy not only provide an environment that is suitable for financial development but also fund activities aimed at understanding its manifestation (DeLisle, 2010). At corporate level, understanding financial development may help businesses make decisions on investment. Individual investors have to be wary of the factors that influence financial development for they are critical in determining profitable portfolios and the value of ones assets (Besser, Recker,  Agnitsch, 2008). Thus, understanding the variables that influence financial development is fundamental for investment and is considered vital by nations, corporate and individuals.

The global financial crisis not only affected the performance of major corporate firms and economies it also resulted in the loss of investor confidence. The performance of a major avenue for financial development like the capital markets is largely influenced by the levels o confidence displayed by the investors. This implies that investors are likely to view financial development from a different perspective relative to the pre-crisis period. Additionally, there are various reforms that are expected in the banking and financial sectors at both local and international levels. This will inevitably affect the suitability of nations for investment. Clearly, the global financial crisis has resulted in a rethink of financial development and has resulted in an entirely different operational environment. To operate successfully in this new environment, nations, corporate and individual investors have to master the dynamics and understand the variables that affect financial development. This is an area of critical importance considering that many nations are struggling to come back from the effects of the crisis and the standards of living depend on financial development.

1.2.1. Research Aim and Objectives
The main aim of the study is to determine the variables that will be globally influential on financial development in the post financial crisis period. To attain this aim, the following objectives will be addressed by the study

To determine the key variables that influence financial development in the post financial crisis period
To determine the variables globally recognized as being highly influential on financial development in the post-crisis period

To establish if there any significant differences in the leading predictor variables in financial development during the pre and post crisis periods

1.2.2. Research Questions
The following research questions will aid attainment of the research objectives
What are the key variables that influence financial development in the post financial crisis period
Which variables are globally recognized as being highly influential on financial development in the post-crisis period
Are there any significant differences in the leading predictor variables in financial development during the pre and post crisis periods

1.3. Rationale
The global financial crisis reinforced the realization that there is no longer an independent economy and mistakes by one entity in the global economy may affect the performance of others. Every nation was affected by the effects of the global financial crisis though there were clear differences in the effects. The experiences of investors in the global financial crisis may affect their confidence and nations are reviewing their economic and financial policies to deal with any leakages that may result in a crisis. This is likely considering that humans tend to shy away from areas where they had failed. Understanding, how investors view the financial environment in the post crisis period may help nations implement better policies and is another motivation for this research.

In graduate studies, emphasis is placed on gaining knowledge that can be applied in practice and understanding the practical application of knowledge in professional areas. The global economic crisis affected not only economies but also the performance of individual firms. Lives were lost and livelihoods destroyed as a result of the crisis which affected different facets of human life. As a graduate student, I am tasked with the application of theoretical and practical knowledge that I have in economic issues to problems that affect the society. Through outlining the key variables that affect financial development in the post crisis period and determining if there are any differences with the pre-crisis period I will have met my obligation as a student in graduate studies. This is the other motivation for carrying out the study.

1.4. Significance 
The study will provide insight into the key variables that affect financial development in the post crisis period. Additionally, the study will highlight the similarities and differences between the factors during the pre and post crisis period. In a nutshell, the study seeks to establish if there has been any change in the predictor variables to financial development. The findings may be important to policy makers as they chart their way out of the ruins brought by the global economic crisis. Additionally, understanding these variables is important to individual and corporate investors for it will provide a guideline on the key variables to watch out for in the post crisis period. This is important considering the chaos and uncertainties that characterize post crises.

Millions of lives were affected by the crisis. This suffering still continues as economies try to revive their strong points and attract shy investors. By highlighting the major predictors variables to financial development in the post crisis period, the study will help nations develop policies that will speed up the process of recovery and therefore minimize human suffering.

Many analysts are of the view that globalization has developed to the extent that economies have basically reached a crisis age. This is a controversial issue though it is evident that market shocks and the level of uncertainty in the stock market are at an all time high. By determining if there are differences in the predictor variables to financial development before and after the crisis, the study will provide a basis for further research on changes that occur during a financial crisis. This study will not only contribute to understanding financial crisis but also highlight areas that may need further research to minimize human suffering and losses during crises. It is therefore evident that the proposed study is significant in adding knowledge on dynamics during financial and economic crises which is important in the modern financial environment.


 Chapter Two Literature Review
There has been a lot of research aimed at determining the variables that affect financial development. Understanding what has been done is vital for it provides a support for the rationale of the study. Importantly, gaps that require address can only be identified if the existing literature is reviewed comprehensively.

2.1. Potential determinants of Financial Development
Research on financial development is ongoing mainly because the financial environment is highly dynamic. The role of the banking system and the overall financial system is noted as being critical in determining performance in economic development. Financial systems are inherently charged with mobilizing savings, evaluating and monitoring projects and enabling individuals so that they can take risks play an important role in encouraging productive investment and influencing total factor productivity (Moore,  Neal, 2009). Despite the existence of a host of factors that influence organizational operations and affect financial development, researchers have converged on a number of determinants (Moore,  Neal, 2009).

2.1.1. Institutions
Institutions play a vital role in determining the overall performance of financial markets. The legal and regulatory environment determines the flexibility that can be attained by businesses and investors which affects the performance of the financial markets. A legal and regulatory framework that involves protection of property rights, good accounting practices and proper contract enforcement are essential for and promote financial development (Downes, 2009). A legal code influences the treatment that creditors and shareholders will receive and therefore goes along way in determining the efficiency of contract agreements. The independence of legal bodies and statutes is also essential in determining how they are perceived by investors. Regulatory environments where the legal structures are manipulated by the government are considered inappropriate and risky by investors.
Countries with legal codes that protect private property owners differ a great deal from nations that have civil laws where emphasis is placed on the rights of the state rather than the rights of individuals. In general, nations that emphasize on civil laws tend to have inefficient contract enforcement strategies, less developed financial system and higher levels of corruption (Cooper, 2009). Nations whose legal system emphasize on the rights of individuals have stronger contract enforcement systems and achieve higher levels of financial development. Regulations regarding information disclosure, permissible banking practices and accounting practices have a direct effect on the levels of financial development that a nation can attain (Armour, Deakin, Mollica,  Siems, 2009).

2.1.2. Policy
Policies affect how businesses view their macro-environment and essentially the strategies that businesses adopt when operating. Openness of the market and financial liberalization which have direct impact on financial development are influenced by the prevailing policies. Unlike institutions which have profound effect on the supply side of financial development, policy formulation affects both supply and demand (Monroy,  Hernndez, 2008). Macroeconomic policies such as maintaining low levels of inflation and high levels of investment have been shown to provide an environment that supports high levels of financial development (Banoob, 2009). It is important to note that the economies in nations that are characterized by high levels of inflation tend to have less active and less efficient banks and equity markets. This is mainly because inflation is a form of uncertainty that affects business operations and may result in unnecessary losses.

Causality analysis and time series analysis are some of the approaches that have been adopted in seeking to determine the role of policy formulation in financial development. Generally, open markets and policies that allow for the same support strategies focusing on financial development (Boone,  King-Berry, 2009). Through allowing for movement and access of services, open policies allow for high levels of competition which if properly managed can lead to sustained high levels of financial development. Financial liberalization which is a policy direction that nations may opt for affects financial development. While financial repression may significantly reduce the quality and quantity of investment, liberalization allows for investment and fosters economic growth which contributes to improved productivity (Prasad, 2009). This is a finding that is supported by various independent and corporate research bodies though it is worth noting that domestic liberalization has associated risks that have to be managed well.

Capital account openness may have positive effects on financial development though it may also have destabilizing effects that have to be watched and dealt. For instance opening banking markets has been shown to have a positive effect on the functioning of the national banking systems and quality of services that can be accessed (Banoob, 2009). It is noteworthy that on the positive side, this may result in better services for the consumers whereas it may erode the profits made by banks. Other researchers have gone as far as analyzing the effects of financial liberalization on financial restrictions and the external costs of capital premium (Chan, 2006 Moore,  Neal, 2009). Through improving access to start up capital for businesses and allowing for flexible banking and financial terms, financial liberalization may stimulate domestic investments and therefore financial development. Additionally, opening up the stock market to foreign investors results in an increase in the volatility of the stock and increased correlation of the performance of the domestics market to the word market (Thies, 2009). This has positive and negative effects depending on the prevailing market conditions and the number of investors that trade in the local market.

2.2. Financial Stress
A vital success factor to the success of any economy in the post crisis period is how well the financial crisis is managed and the associated stress alleviated. Alleviating the financial stress and its effects on the economy plays a vital role in preparing an economy for recovery. The Federal Reserve in the US has for example taken drastic measures to support the functioning of the financial markets. Some of the measures taken include reducing the federal funds rate target (Okimoto, 2009). However, it is inevitable that the Federal Reserve Bank will at one point have to remove liquidity from the economy and end the special lending programs to ensure that economic growth is sustainable and reduce the levels of inflation.

Past recovery strategies aimed at strengthening policy focused mainly on the strengths of consumer and business spending and the upwards pressures on wages. However, the 2008 economic crisis had a strong financial dimension which places a requirement for the Federal Reserve and financial policymakers to address financial stress (Andrei, 2009). The main emphasis will be determining if the levels of financial stress are low enough to provide support for economic recovery. It is worth noting that high levels of financial stress may be disastrous to the prospects of economic recovery and financial development (Nee,  Opper, 2009). As the financial conditions improve, it s highly likely that various measures of financial stress may give different signals (Archer, 2009). This is a key challenge to policymakers whose decisions and insight on the economy plays a vital role in determining the rate of recovery and performance after the recovery. However, understanding the fundamental characteristics of financial stress provides an avenue to making informed and prudent financial decisions that may aid and support recovery efforts.

Financial stress which is a key feature of the 2008 economic crisis is often characterized by increased uncertainty on the fundamental value of assets. This uncertainty is prevalent among lenders and investors who appear to be unsure on the value of assets. It is noteworthy that the fundamental value of an asset is the preset discounted value of cash flows for instance dividends and interest payments (Chan, 2006). Increase in uncertainty on fundamental value of assets within the market generally translates to higher levels of volatility in market prices of the assets. Any market defined by high levels of uncertainty is deemed risky and is generally associated with high prices to compensate for the high operational risks.

Increased uncertainty on the fundamental value of assets may be a reflection of the high levels of uncertainty on the economy or on some specific sectors. Prospective cash flows emanating from stocks, loans and bonds are dependent on future economic conditions. Thus heightened uncertainties on the economic conditions can result in lenders and vendors being unsure of the NPV of these cash flows (Bondi, 2010). Moreover, the increase in uncertainty on the fundamental value of assets may be a result of financial innovation that makes it difficult to assign probabilities to different financial or economic outcomes. This form of uncertainty in which risk is unknown and immeasurable is technically referred to as Knightian uncertainty which according to economists tends to occur when losses are incurred on a new financial instrument of practice for instance the Collateralized Debt Obligations (CDOs) that were central to the sub-prime crisis (Berry,  Grayeff, 2009 Rao,  Woolcock, 2007). Due to lack of historical experience to draw from on the part of the investors, they tend to conclude that it is impossible to form judgment on the probabilities of returns on new products.
Increase in the levels of uncertainty on the fundamental value of assets results in heightened levels of volatility which causes strong or heightened reactions by investors to new information. This is a probable explanation to the high levels of volatility that is characteristic of the post global crisis capital and stock market trade (Berry,  Grayeff, 2009). The maximum price an investor is willing to pay for a stock is dependent on the long run estimate of the companys productivity. Higher levels of uncertainty in the initial prediction of the firms performance will generally translate to a high number of translations to the price with receipt of new information (Campbell, 2009). This results in high levels of change in the prices that investors are willing to offer which is in essence volatility. A high level of volatility is associated with low performance of the financial and stock markets which is a key avenue to financial development. Additionally, high levels of volatility tend to send shocks across the financial markets and have a negative impact on investor confidence.

Financial stress tends to be characterized by an increase in uncertainty on the behaviour of other investors. The behaviour of other investors plays a central role in adding to the high levels of volatility during financial crises. The expected returns for assets that need to be sold before maturity depend largely on the actions of other investors in the long term or the hold to maturity value associated with an asset. The main incentive in situations where price is rewarded for anticipating is to anticipate what average opinion expects average opinion to be (Dervi_, 2010). In the context of the stock market, such recursive behaviours generally tend to be more prevalent when investors and lenders are uncertain of the fundamental value of assets. Additionally, this form of approach to valuation of stocks and investments is common in cases where there is little historical evidence to base opinions and assumptions on new products have been proven false. Uncertainty on the behaviour of other investors has the same effect as uncertainty on the fundamental value of assets which is increased volatility on asset prices (Yunus, 2009). When investors decisions are based on guesses on other inventors decisions, prices of financial assets are influenced minimally by the fundamental assets which results in high levels of price volatility.

Increased asymmetry of information is another observable characteristic during financial distress. Differences in the quality and nature of information that lenders and borrowers or buyers and sellers have on financial assets are prevalent during financial stress. Asymmetry of information exists when borrowers have access to more information and know more about their financial condition than lenders. This term is also used in reference to scenarios when sellers know more on the actual quality of assets than buyers (Haslag,  Pecchenino, 2005). Such information gaps can result in problems in adverse selection of moral hazards which result in a boost of average cost of borrowing incurred by firms and a reduction of mean prices of assets in secondary market.

Consider a case where investors have knowledge of the average risk of firms issuing bonds but they cannot distinguish the high quality firms, they will require a rate of interest for a firm with average risk. However, higher quality firms may rely on internal funds rather than borrowing which denies investors the information they require thus resulting in an adverse selection problem (Park, 2009). Clearly in such situations the mix of firm selection worsens resulting in investors demanding higher return rates. Such asymmetries in information may arise during financial stress for two key reasons (Miller, 2006). Variations in true quality of borrowers or financial assets might increase during financial stress. Consider a case where the value of a collateral is expected to decline for instance during bubble bursts loans to high income borrowers under such conditions have lower risks than loans to low income borrowers (Smith,  Hargroves, 2009). If lenders in such scenarios face difficulties in determining borrowers incomes there will be a difference in the perception of true risks with the borrower having better knowledge. Another avenue through which information asymmetry worsens in financial stress is loss of confidence in the information on borrowers by lenders. Credit ratings which are often used to determine risks tend to be subjective and lose their objectivity during financial crises and stress (Desai, 2010). This clearly results in information asymmetry as the issuer of the bonds has more knowledge on the risks than investors.

A decrease in the willingness to hold risky assets and a flight to quality assets is also prevalent in times of financial stress. Such shifts in preferences often result in lenders and investors demanding higher expected returns on risky assets and lower returns on safe assets. These shifts which are also referred to as flight to quality often results in widened spread between the rates of return on the risky and safe assets and an increase in the cost of borrowing for risky borrowers (Creane, Goyal, Mushfiq,  Sab, 2006). Understanding what causes the shifts in preferences is essential in determining why this trend tends to be prevalent during financial stress and crises.

Some theorists on financial crises assert that lenders and investors have a tendency of underestimating risks during bubbles or booms and overestimating them during bursts. According to this school of thought, complicacy is a shared sin between lenders and investors during periods of prolonged economic stability to the extent that previous losses are forgotten (Bates, 2010). During the stable financial periods investors tend to ignore the fat-tail risks which is the non-negligible probability of extreme losses. The euphoria often leads to bad investments and bad loans which result in losses (Argent, 2005 Ramaswami, Srivastava,  Bhargava, 2009). This realization often hits hard turning euphoria into gloom thus causing a direct swing or shift to the opposite thus overestimation of the risks of loss. Another reason presented for the flight to quality is the inherent appetite for risk falls. When there are uncertainties on the future of the economy and wage incomes, lenders and investors will require greater compensations for risky assets which boost the returns on relatively safe assets (Smith, 2006).

A final sign of financial distress is a decrease in the willingness to hold illiquid assets. An asset whose owner cannot be confident of selling at a value that is closer to the fundamental value if faced with sudden unexpected need for cash is referred to as an illiquid asset. An illiquid asset may be due to a thin secondary market which results in a condition where selling a substantial amount of an asset have an effect on its price (Wiesel, Skiera,  Villanueva, 2008). In some cases, an asset may become illiquid because it is of above average quality and asymmetry of information between buyers and sellers has hindered sale of the asset at a price that is comparable to its fundamental value (Choi, 2009 Smith, 2006). During financial crises, investors are generally less willing to hold illiquid assets and tend to prefer liquid assets (Gibson, 2009). The flight to liquidity widens the spread between the rates of return on the liquid and illiquid asset and increases the cost of borrowing for firms that hold illiquid securities.

There are two major reasons that promulgate flight to liquidity during financial stress and downturns. Increases in demand for liquidity so as to protect against unexpected cash needs and a decrease in perceived liquidity of some assets are the two key factors driving flight to liquidity during times of financial crises. Financial stress is often associated with an increase in asset price volatility which raises the likelihood that leveraged investors have to liquidate some assets to meet the margin calls (Berry,  Grayeff, 2009). This increase in asset price volatility also translates to similar changes in the chance that financial intermediaries such as mutual funds have to liquidate assets to meet redemptions. To effectively guard against such events, investors and financial institutions must take steps to build up their liquid assets. Another possible cause of flight to liquidity is a reduction in the perception of liquidity of assets which is a direct result of asymmetry of information between buyers and sellers (Robinson, 2007). In such cases, market values of some assets may fall below their fundamental and hold to maturity values due to adverse selection. Investors tend to view such assets as illiquid mainly because they cannot be sold to raise cash without making substantial losses.

2.3. Critical Review
While researchers have extensively studied the economic crisis to establish its causes and how it can be addressed, few have sought to establish the effects of the economic crisis on financial development. The existing literature points to the fact that financial stress leads to strain in various aspects of business operations (West,  Noel, 2009). Financial stress which is common during and after economic crises result in a dip in investor confidence and uncertainty in the performance of the financial markets. Information gaps develop and flights to quality and illiquid assets become more prevalent as investors seek to limit risks (Agnor,  Montiel, 2008 Altman, 2009). With the multiple difficulties and a reduction in financial markets willingness to lend, it is not surprising that the period after financial crises is defined by a different perception of market factors. From a strategic viewpoint, the changes in the operational environment may affect how investors view their operational environment. This may significantly influence the sectors they are willing to harness and the economies they are willing to invest in (Claessens,  Feijen, 2007). Additionally, the changes made after the occurrence of a financial crisis in financial regulations may affect the suitability of a nation to financial investment. Put simply, though it may be in the interest of nations to develop tight financial regulations, this may not be the case due to the levels of competition between nations (Altman, 2009). Thus creating a balance between restrictive and liberal financial policies from investors viewpoint may go a long way in promoting financial development. However, it is still unclear how this balance can be attained.

The factors that affect financial development can be categorised into tow broad categories. This categorisation is based on the key findings made by researchers on financial development. The policy making environment and the financial environments are the two main categorisations of the factors that have the most effects on financial development. It is important to note that several researchers highlight the financial policies, the prevailing economic conditions and the existence of various support structures as being vital to financial development (Smith, 2009). Some researchers have gone as far analysing the specific factors within the economy that affect financial development and their relationship.  Acosta, Baerg, and Mandelman (2009), established that there is a relationship between remittance inflows, financial development and the real exchange rate. The researchers established that the levels financial development and stability have significant influence on the effects of remittances on financial and economic development. Well developed financial sectors are better placed to channel their remittances to investment opportunities (Tikoo,  Ebrahim, 2010). This is an example of a study that takes a qualitative approach and regression analysis to establish the nature of interaction between factors that influence the financial environment. Development of the financial sector is dependent on the nature of policies that have been adopted and the structures that have been put in place to promote financial development (Crdova,  Seligson, 2010). Thus, the categorisation should not be assumed to imply independence of the factors that affect financial development. In fact, there is significant correlation between a number of factors that affect financial development which complicated statistical analysis and use of simple correlation test in making inferences in factors that affect financial development (Bai, Yen,  Yang, 2008).

The interdependence between the variables that affect financial development has had significant influence on the methodological strategies adopted by researchers in financial development. There is no doubt that this interaction has also played a significant effect in determining the nature of frameworks that have guided these studies. A large number of statistical analysis procedures are based on the assumption of independence between the predictor variables. Regression, ANOVA and factorial designs are all based on the assumption that the predictor variables have zero correlation. However, a thorough analysis of the factors that affect financial development reveals that they are not necessarily independent. Financial development has for instance been shown by a host of researchers as being highly influenced by the policy making structures and the prevailing economic environment (Temin, 2008 Young, 2006). These are factors that have significant direct effects on financial development despite their clear influence on the policy making structures. This interrelation though not widely addressed by researchers raises questions on the reliability and validity of results found by using models that assume that the predictor variables are independent despite their clear dependence (Blasband, 2009). This is an area of critical importance that ought to be researched further since it has significant influence on the accuracy and validity of the findings and their influence on the policy direction adopted by nations.

There is need for further studies that will establish the key variables that will influence financial development in post economic crisis economies. This is important mainly because the financial environment during and after an economic crisis may be highly unpredictable. Additionally, there is little that researchers have done to establish the nature of financial environments after the 2008 crisis. This is important because crises occur for different reasons and are therefore characterized by different dynamics. Since every crisis is fundamentally different, each has to be studied carefully to determine its influence on various institutions and social faculties that influence economic and financial development (Chan, 2006).

A review of the methodological strategies adopted in financial development reveals that there is a serious methodological problem. Traditionally use of econometric models characterise research in financial development. Use of econometric model that are largely quantitative is quite effective in highlighting correlation between different economic factors and may even be used to determine causality. However, few studies within the 2008 economic crisis and after the crisis have adopted econometric models. In fact, it appears that researchers are shying away from the use of quantitative methods and there is an increase in general preference for qualitative methods. A balance between the use of quantitative and qualitative research strategies is important in ensuring that an area is addressed exhaustively and there is sufficient information for further research and to inform policy direction (Courson, 2008). Over reliance on qualitative research methodologies implies that the findings on factors that affected financial development before the financial crisis are still being used in the post crisis period. This raises questions on the reliability of a qualitative research methodology in the light of the fact that the financial crisis had tremendous influence on financial systems and investor confidence. Modelling the research strategy is therefore an important area in post economic crisis research for it affects both the reliability and validity of the findings.

 Chapter Three Methodology
The literature review supports the rationale for the study and highlights some gaps in the existing literature that need to be addressed to ensure that firms operate profitably during financial stress. This highlights the areas that need to be focused on by government and individuals institutions to ensure financial development. This chapter presents the research design, the research approach and an assessment of the validity and reliability of the methodology.

3.1. Research Design
The research design plays a central role in determining the specific internal strategies that are adopted in the study. It is noteworthy that overall validity and reliability of the findings is dependent on the research approach and its suitability to the problem. The utility and overall significance of the study is affected by the relevance of the research strategies and accuracy of the data. It is therefore important to ensure that the research approach adopted for the problem is relevant and effective. A critical review of the existing literature reveals that financial development and investor decision making during times of financial strain have been analysed in great depths. Researchers have in depth sought to understand the variables that affect financial development at national level. Additionally, the characteristics of a financially stressed environment have been analysed in great detail as analysts try to grasp the challenges during and after financial crises.

Every financial or economic crisis affects the economy and financial development differently and may therefore have different effects on the investors. This implies that the problem area is not new to researchers and there is a lot that has been done that may be helpful in addressing the research objectives. Thus the research design should allow for the inclusion of secondary data and findings in addressing the research questions and meeting the research objectives (Punch, 2005). On the other hand, there is little that has been done by researchers to establish how financial development can be supported in the aftermath of the 2008 economic crisis. Though there is literature on financial crisis and how it affects financial development, such literature is not in line with the research objectives and is not specific to the 2008 economic crisis. A mixed research design was adopted in the study to allow for both qualitative and quantitative analysis was adopted in the study.

The research philosophy adopted in the study is equally important in guiding the specific strategies that was used in the study. Post-positivist research philosophy was considered in developing the research approach. Post-positivist philosophy emphasise on the need to triangulate information from different sources (Creswell, 2009). Triangulation has the benefit of improving both the construct and internal validity of a research and is therefore an important strategy in improving the accuracy and authenticity of the findings (Punch, 2005).

3.2. Research Approach
The specific research strategies used in the study are critical in improving the ease of data collection, analysis and the entire research processes. Conformance to ethical requirements in research is also important for it determines acceptability and utility of the findings. Secondary data collection involved a review of literature on financial development before, during and after the financial crisis. The main aim in secondary data collection was to determine the factors that affected financial development before the 2008 crisis which is essential in addressing the third research question. The validity and reliability of secondary data depends on the degree of accuracy and consistency afforded by the literature reviewed (Creswell, 2009). This clearly implies that the literature reviewed has to be of high levels of accuracy and have minimal biases. The following criterion was used in selecting the literature reviewed to ensure accuracy of the findings

Type of resources The literary world is filled with literature of different type. Web articles, books and journal articles can be referenced in collecting secondary data. Apart from journal articles, the other types of literature resources rarely have primary data. By limiting secondary data collection to journal articles, reliable web articles, reliable books the study ensures that the sources used are accurate thus minimising author bias.

Peer Review Peer review is the systematic analysis of the methodological strategies adopted in collecting and analysing data for a journal article or a book. This process is carried out by experts in data collection and analysis and in the subject area being addressed. Peer reviewed articles therefore have minimal methodological biases which makes them preferable for secondary data collection (Creswell, 2009). In case of web articles the sources have to be authentic and with good reputation.
Relevance to the Problem Different topics are tackled by journals thus having access to journal articles that tackle issues in the problem area is essential. The main issues being addressed in secondary data collection are the variables that were influential on financial development before the financial crisis. Use of the search utility provided by online databases coupled with scheming through the abstract of the retrieved articles helps ensure that the articles used are relevant to the problem.
Recent Sources The 2008-2007 economic and financial crises delimit the scope of the study. This phenomenon is fairly recent and therefore the resources used have to be recent to ensure that the nature of the problem is actually captured in data collection. The sources used have to be at most five years old to minimise the risk of using sources that are outdated.

3.2.1. Data Collection and Instrumentation
Secondary data collection involved searching for and analysing literature resources. Secondary data collection is the main research mechanism used in the study. Data on the factors that influenced financial development before and after the financial crisis was sought from peer reviewed journal articles. This approach to data collection improves not only the ease of access to relevant data but also reduces the risk of making poor methodological choices. Moreover, the literature review shows that financial development before and after the financial crisis is an area of interest to most researchers thus gaining access to data may present few difficulties. However, the use of secondary data necessitated standardisation of different data. It is noteworthy that the different authors had different approaches to data collection which could have affected the accuracy of the findings without standardisation.

3.2.2. Data Analysis
Quantitative approach to data collection is used in the study. Quantitative analytical techniques are used extensively for primary data analysis. Descriptive analysis which involves the use of tables and graphs is employed in the study. Additionally, statistical analysis is required to determine if the differences in variables that influence financial development in the pre and post economic crisis environments are significant. Inferential data analysis used in the study targeted mainly comparison between the pre and post economic crisis period. Linear regression analysis was used to determine the differences in the influence of the different predictor variables on the main dependent variable which is financial development (Punch, 2005). This is an inferential statistical technique that assumes a linear relationship between the independent variables and the dependent. The predictor and independent variables are assumed to be related by the linear regression model
FD b0b1EGb2IFb3IVb4ED,
Where
FD is financial development
EG is economic growth
IF is the inflation rate
IV is the internal investment
ED is external debt
b0 b1 b2 b3 and b4 are regression coefficients
 is an error term.

Additionally, Pearson Correlation Coefficient test is also used to determine if individual predictor variables have significant influence on financial development. Findings from qualitative analysis of the secondary data are compared with that from secondary data analysis and any differences noted (Punch, 2005). This is a control mechanism that seeks to improve the accuracy of the data and findings in the study. This approach is referred to as triangulation which helps minimise biases associated with specific approaches to data collection and analysis.

3.3. Validity and Reliability
Validity and reliability are important measures in research that may have practical influence on human life and in attaining the significance of any study. Studies designed with little considerations on validity and reliability display low levels of authenticity and may therefore not be adopted in practice. This should be avoided by including methodological strategies that allow for improvement of validity and reliability. Validity is concerned with the accuracy of the findings. Use of triangulation in analysis and adoption of a post-positivist philosophy in the methodology are strategies that aim at improving the accuracy of the findings (Punch, 2005). Triangulation minimises methodological biases that could have affected the accuracy of findings whereas use of quantitative research that depends on scientific data analysis improves the reliability and accuracy.

Reliability is on the other hand concerned with consistency of the findings with the expected findings. Consistency is often affected by the existence of uncontrolled variables that influence the observed results. The main approach used in the study to mitigate the risk of inconsistent findings is a control mechanism where secondary and primary data analysis findings are compared. By using recent resources, the risks that the findings may not be relevant to the conditions observed in practice is mitigated. The use of triangulation also helps mitigate any biases that may arise from the preferences of the financial experts.

3.4. Ethical Considerations
The study is designed to address an issue that has the potential of affecting not only economic performance but also the standards and quality of human life. This implies that the study has to be designed in a manner that is in line with the general expectations as outlined by social, research and academic values. Moreover, when using data and information from secondary resources special care was taken to ensure that such information is properly referenced. This is in line with the ethical requirement to avoid plagiarism when carrying out academic and research work.

3.5. Limitation
There are a number of limitations that may affect the accuracy of the findings that have not been adequately addressed in the study. Secondary data collection is prone to different kinds of biases arising from participants view of the problem being addressed. These biases may affect the accuracy of the findings. Additionally, the criterion set for choosing resources for secondary data collection may limit the scope of the findings. However, such limitations are negligible considering the important role played by the criterion in improving the reliability and validity of the findings.

 Chapter Four Results, Analysis and Discussion
The dissertation has been developed with the aim of addressing gaps in literature relating to the variables that are influential on financial development in the post economic crisis economies. This chapter will present the results, analysis and discussion of the results. By the end of the chapter, both research questions and objectives should be sufficiently addressed.

4.1. Results
Qualitative review of the existing literature is one of the avenues used in addressing the research question. This process involves as review of the existing literature and highlighting some of the key findings which are then compared to the findings from quantitative analysis of data. This mixed approach seeks to improve the accuracy of data collection and significantly affects the reliability and validity of the findings. It is however noteworthy that the main approach to analysis is via the use of quantitative methods. Data on various aspects that affect financial performance was sought from various peer reviewed articles and reliable information resources. This approach ensured that the data collected was not only accurate but also reliable.

There are various variables that researchers have centred on in their quest to develop a better understanding of financial development. Financial development is generally viewed as a multifaceted aspect of organisational or national performance. The study is mainly concerned with understanding the nature of variables that affects financial development at a national level. This implies that the data used in the study should be from reliable sources and has to be relevant to financial development. In exploring the different sources of data, the study established that there are few reliable sources of financial data on the internet. Additionally, few peer reviewed journal articles presented information that is sufficient to collect adequate data for a quantitative analysis. It is noteworthy that these are difficulties that are expected considering that a secondary data collection approach was adopted. Access to various information resources and allocation of adequate time was necessary to ensure that data collection was carried out well. Additional, data is collected on the financial performance and various economic and financial performance indicators from different nations. All continents were represented in data collection which is important in ensuring that the results are representative of the real population. The financial period between 2009 and 2010 was considered to be the post crisis period in data collection. The period between 2006 and 2007 was considered to be the pre-financial crisis period in data collection. The choice of these periods is guided by the occurrence of the financial crisis and availability of data. It is noteworthy that data on the financial performance and other financial indicators for the period between 2010 and 2011 could not be used in the study since such data would lead to inaccuracies.

From Figure 1 and 2 it is evident that Egypt, USA, Spain, China, Brazil and South Africa were the nations that were considered for data collection and analysis. Apart from the need to ensure that different continents and represented, there are no other considerations in choosing the nations. It is important to note that the data represent developed and developing nations. Additionally, first world, second world and third world nations have all been included in the sample. This is an important measure in ensuring high levels of external validity and therefore the authenticity of the results.
A review of the data reveals that there have been significant drops in economic development in the aftermath of the financial crisis.

A look at figure three reveals that the inflation rates went down after the financial crisis. It is important to note that the lowering levels of the rates of inflations are clearly in response to various measures placed by governments to deal with the high inflations rates that occasioned the actual financial crisis. High rates of inflations may have multiple negative effects on the levels of financial performance that a nation can attain. Thus when faced with uncertain economic and financial times nations tend to use their financial structures such as federal reserves and central banks to maintain low levels of inflation. The government bailout in the US and injection of funds into various institutions as ways of dealing with the 2008 economic crisis and minimising its effects have also played a role in the low levels of inflation.

There are marginal changes in financial development in the aftermath of the financial crisis. A thorough reviews of Figure 4 reveals that Egypt, Brazil and South Africa recorded marginal gains in financial development after the financial crisis. These nations are third world countries that have relatively low levels of financial development when compared to other developed nations. Additionally, their level of financial development and reliance on financial institutions for direct financial development is slightly lower than in developed nations. Simply, the collapse or uncertainty of the financial markets is more likely to cause greater financial impact in the US than in Egypt. This is another possible explanation for the observed variations in the levels of financial development before and after the crisis between developed and developing nations.

Economic growth has been recorded in nearly all nations. It is important to note that the financial crisis had multiple ramifications on structures and systems that support the economy. Both developed and developing economies were affected by the crisis mainly because of the interdependence between the economies. Some nations have recorded negative economic growth in the aftermath of the economic crisis. USA, Spain and Brazil recorded negative economic development, whereas China, South Africa and Egypt recorded positive growths (Figure 5). It is important to note that the economic development before the crisis has some close correlation to the drop. The countries with low levels of economic developments which are commonly stable first world nations recorded negative growths. On the other hand, countries with high levels of economic development recorded higher drops though this did not culminate in negative economic growth. This is an important observation that serves to reinforce the fact that all economies suffered as a result of the financial crisis.

The levels of investment within the nation display relative stability in all nations. The level of internal investment appears to have gained marginally in all nations. It is noteworthy that though the financial crisis had multiple financial implications and affected economies its effect on the net investments is minimal (Figure 6). This is mainly due to the structures and strategies that nations put in place to deal with the crisis. Another important aspect is that investments are generally illiquid and highly fixed. The financial crisis affected mainly financial institutions and its effects trickled down to other economic institutions. Investments are on the other hand widespread within an economy which implies that the value of investments within a nation can only be significantly affected by a multidimensional and holistic factor.

External debt were also least affected by the financial crisis. External borrowing is a strategy that is often used by government to supplement their earnings and borrowing. It is important to note that the economy has to be supported using finances. Sometimes governments are forced to borrow form external entities to supplements their deficits thus external debts (Figure 7). External debts not only point to the level of financial activity in the economy but may also depict the existence of finances and adequate support for financial development. The differential changes in the levels of external borrowing in the aftermath of the financial crisis are a reflection of differences in national monetary policies. There are nations that tend to borrow more externally rather than through internal mechanisms such as government bonds. It is thus evident that the national monetary policies which also helps define the monetary policies adopted by nations had an effect on the levels of their external borrowing.

4.2. Analysis
Analysis as per the adopted methodological frame involves Pearson correlation coefficient testing and linear regression analysis. These are statistical methods that generally targeted quantitative analysis of the data. Additionally, a qualitative dimension of analysis has been incorporate in the study. This qualitative dimension involves a review of the existing literature to determine the existence of studies that have targeted understanding and analysing the factors that influence financial development prior and after the financial crisis. The mixed methodology adopted in the study has been clearly influential on the research structures and strategies that have been adopted in research. Statistical analysis involved the use of statistical software to improve the accuracy of the calculations and minimise the risk of erroneous analysis and inferences. The main tests are Pearsons Correlation coefficient test and linear regression analysis.

The Pearson Correlation test is a bivariate statistical test that seeks to determine if two variables are dependent and the degree of their dependence. A correlation coefficient value of zero implies that the variables are independent. From the results presented in Figure 8 it is apparent that all the variables have an impact on financial development. The findings in table 8 are derived from analysis of the relationship between the predictor variables and financial development after the economic crisis. Economic growth has a correlation coefficient of 0.1012 which is relatively low. The finding implies that economic growth has a significant positive effect on financial development. Inflation rate has a strong negative correlation coefficient of -0.623. This implies that a positive change in inflation will cause a strong negative effect on financial development. Investment has a strong positive correlation with financial development. With a correlation coefficient value of 0.865, investments has the strongest positive correlation with financial development. External debt on the other hand has the least positive correlation with external best. With a correlation coefficient of 0.101, external debt is the least influential factor on financial development after the financial crisis (Figure 8). It is important to note that Figure 8 is a representation of the correlation coefficient values after the crisis and further analysis is required to develop and understanding of the nature of interaction between the variables before the financial crisis. The table shows that investments and inflation have high correlation with financial development. Increase in inflation rate has the highest negative effects on financial development whereas increase in investment has the highest positive effects. It is however important to note that financial development is dependent on economic growth and external debt though their correlation is weak.

The correlation coefficient values before the financial crisis presents a picture of the nature of the relationship between the dependent variable and the independent variables. The findings in Figure 9 show that economic growth is inversely related to financial development before the crisis with a correlation coefficient of -0.1309. This contradicts findings showing that economic development is dependent on financial development. A critical review of the findings in practice reveals that unless economic development is geared towards financial development fewer changes can be expected. In fact there are cases where economic development is geared towards creating support structures to financial development such as infrastructures and in such cases a direct relationships may be difficult to establish. It is also important to note that the researchers that have established findings showings that economic development is positively correlated to financial development generally use longitudinal designs rather than cross sectional designs. Such designs consider the interactions of financial development and economic growth over a long span of time.

Inflation rate had a negative effect on financial development before the financial crisis. The findings show that inflation rate and financial development have a negative correlation coefficient of -0.5417 (Figure 9). This correlation coefficient is representative of a fairly strong negative relationship between the predictor variable inflations and the dependent variable economic growth. This implies that an increases in inflation rates before the crisis would have resisted in a decline in financial development.

Investments and external debts are characterised by strong correlation with financial development before the financial crisis. With correlation coefficient of 0.899 and 0.872 respectively, the two variables were the leadings predictor variables to financial development before the financial crisis as per the findings. External borrowing brings in finances that if well used can be directed to financial activities thus financial development (Figure 9). On the other hand, internal investments not only create money making avenues internally but also provide employment and empower nationals and are therefore an important factor to financial development.

Figure 10 compares the correlation coefficient values before and after the financial crisis. It is important to note that whereas inflation rates and investment have shown minimal changes, drastic changes are recorded in the correlation coefficient of external debt and financial development. It is important to note that the statistical analysis shows correlation and causality should not be assumed. This is especially true in the case of a bivariate analysis of financial development since various researchers and the Pearsons correlation analysis conducted all converge on the findings that financial development is affected by multiple variables. The sensitivity of economic development to inflation went up after the financial crisis. This increase in sensitivity to inflation rate can be explained by the behaviour of investors during and after a financial crisis. Many experts on financial matters are of the view that financial crises erode investors confidence and increase their sensitivity to news on events. High inflation rates are generally more likely to be viewed negatively during post crisis environment than before. However, it is evident that high inflations rates are detrimental on financial development irrespective of the presence or absence of a financial crisis. This is mainly because the high levels of inflation are associated with increased complexity in operating within a given environment. Additionally, high levels of inflation increases uncertainty on the future which reduces investors confidence in channelling resources within a given economic or financial area.

Investment has a consistently high positive correlation with financial development. However, after the crisis there was a small drop in the effect of investment on financial development. Investments are major sources of earnings and form an important avenue to financial development through loans and mortgage backed securities. This effectively implies that an increases in investments not only creates avenues for financial independence and security but also diversify sources of finance for development. The high correlation is therefore depictive of the multiple effects that investments has on financial development. The small decrease in the effect of financial development after the crisis is expected considering that the crisis had multiple effects on investments and resulted in loss of investors and institutional confidence in some of the established avenues to financial development. The nature of the 2008 economic crisis may thus be a major contributor to the observed differences in the effect of investment.

The role of external debt on financial development shifted significantly after the financial crisis. Though the effect of external debts on financial development is still positive there is no doubt that the financial crisis significantly affected its roe in financial development. A drop of the correlation coefficient from 0.872 to 0.101 could have been a result of the uncertainty that crippled the financial environments and various economies during the 2008 economic crisis. There were rumours of major organizations going under and some economies being at the brink of collapse. It is quite evident that in such an environment few external investors were willing to channel their resources to financial development. Additionally, it is highly likely that the questions that had been raised on the stability and objectively of the financial sectors in the aftermath of the financial crisis had a negative effect on investors. These are issues of critical importance that may have played a role in the reduced effect on financial development as nation try to restructure their financial systems and strengthen their internal capabilities. This is clearly brought out in the small shift in external borrowing despite trillions being channelled to bailouts and financial reforms (Lamore, Link, Blackmond, 2006).

The changes in economic growth from negative to positive correlation coefficient before and after the financial crisis tells a lot about the role of economic growth to financial development after the financial crisis. Financial institutions, employment opportunities and economies were affected by the 2008 economic crisis (Lampenius,  Zickar, 2005). These are avenues that play critical role in financial development which clearly brings out the economic dimensions of the crisis. Thus economic development which involves strengthening the economic sectors that were worst affected by the crisis is an important avenue to financial development in the post crisis economic environment. 


4.2.1. Linear Regression Analysis

The p-values prior to and after the financial crisis which tests the hypothesis that all regression coefficients are equal to zero are 0.08026 and 0.2869 respectively. These values are greater than the threshold value of 0.05 and therefore the null hypotheses is rejected and a conclusion made that the regression coefficient are not equal. This is further supported by a look at the Pr (t) that are all greater than 0.05 in all cases. This implies that all the regression coefficients are not equal to zero and therefore each factor has a significant effect on financial development. However, a look at the estimate column in Figures 11 and 12 shows that the variables have different effect on financial development. A unit increment in economic growth before the economic crisis results in an increase in financial development by a factor of 924.64. After the financial crisis the effects of economic growth on financial development reduced to a factor of 503.95 per unit change in financial growth. The figures clearly show that economic growth is the most influential factors to financial development followed by the rates of inflation, internal investment and lastly external debt.  It is noteworthy that these are findings derived from taking the absolute values of the estimated of the regression coefficient corresponding to these predictor variables. The net effect of inflation rates on financial development increased significantly after the financial crisis. The effect factors increased from 230.096 to 277.32 and considering the negative sign this implies that inflation rates are more detrimental on financial development in the post economic crisis environment compared to their effect before the crisis.

A comparison of the estimates for internal investment prior to and after the financial crisis reveals some discrepancy from the expected values. Internal investments are typically a source of not only revenues and employment but also provide an avenue for ensuring liquidity. Before the financial crisis internal investment had a negative net effect of 6.214 which implied that an increase in internal investments is associated with a corresponding decrease in financial development. This however changed after the financial crisis when the effect of internal investment became positive. It is important to note that due to globalisation of economies there is a general tendency to invest outside. A critical review of the 2008 economic crisis reveals that it had an enormous effect on multinationals and the stock market (Knight, Hossain,  Christopher, 2009). These are areas that are greatly targeted by external investors and therefore the crisis appears to have shifted the focus of such investors to internal investment

4.3. Discussion
In discussing the results, their overall significance and practical significance is looked at. Additionally, discussion seeks to ensure that the research is placed in its proper context in relation to research on financial development and the financial crisis. This implies that the research will be analysed in relation to the existing knowledge and its practical implications (IMF, 2007). Moreover, recommendations will be made on the way forward with respect to addressing some of the controversies and limitations surrounding the research.

The results show that there is a significant difference in the interaction between financial development and its predictor before and after the financial crisis. Whereas the variables that affect financial development have been researched far and wide, the correlation coefficient test and regression analysis show that the relationship should not be assumed to be static. Financial analysis and experts generally converge on the fact that the external environment is highly dynamic (Dawson, 2008) findings from this study show that the magnitude of dynamism is highly significant. Figure 10 shows that key financial development predictors are significantly affected by financial development in ways that are sometimes contrary to expectations. Though there are possible explanations to the observed changes there is no doubt that they can be difficult to predict which brings out the need for continuous review of the interaction between the predictor variables (Ferguson, Hartmann,  Panetta, 2007).

The methodological strategy adopted in analysis of financial development appears to be also highly influential on the results. This is brought out in analysis of the effects of economic growth on financial development. According to Figure 10 economic growth had a slight negative effect on financial development before the crisis and a slight positive effect after the crisis. On the other hand, linear regression analysis as presented in Figures 11 and 12 shows that economic growth is positively influential on financial development both before and after the crisis. Additionally economic growth had the most effect on financial development prior to and after the financial crisis. These are differences that can either be attributed to the high standard error associated with EG or actual differences in the mechanism employed by the two approaches. Using models and approaches that approximate the real scenario accurately is better. This implies that the multivariate linear regression analysis is a better model than the bivariate Pearsons correlation coefficient test. Importantly, more effort has to be directed to understanding the real environment which requires a thorough review of various factors that are deemed to be influential on financial development.

Financial development and other economic parameters for instance economic development have for years been modelled by researchers in various fields. The use of Pearsons correlation coefficient testing and linear regression is not new to economic research. However, like all other studies this study suffers the limitations faced by previous studies that adopted a linear regression model. It is noteworthy that linear regression is based on the assumption of independence between the predictor variables. However, this is not the case since some variables show clear correlation and therefore dependence. In practice it is generally hard to get two sets of numbers that are perfectly independent unless they are from a set of random numbers (Creswell, 2009). A look at the financial environment also shows that expecting independence between the predictor variables would be unrealistic considering that financial development and internal investments are deemed to be correlated. This is seen in the high emphasis that nations place on internal investment as an avenue to improving economic stability and attracting external investors. Thus there is need for further research into models that can adequately represent interaction between models that influence a given factor without relying so much on independence. Such models are needed to not only facilitate research in this area but also in other areas of financial practice such as valuating mortgages and risks.

Financial liberalisation is noted as having had considerable influence of rapid expansion of financial institutions and intermediaries. Allowing banking and financial institutions to develop competitive advantage through easing regulation and assessments structures allowed banking institutions meet their customers needs easily (Sharma, 2008). This has resulted in increase in banking and financial services and the levels of competition between players in the banking and financial sector. This is in line with the findings asserting that financial liberalisation played a key role in determining financial development prior to the 2008 economic crisis.

The 2008 economic crisis showed the failures of the assumptions made in adopting financial liberalisation. Whereas financial liberalisation has the potential of improving financial development and allowing for availability of capital, if mismanaged it is detrimental. The 2008 economic crisis is according to a number of financial experts a result of poorly managed financial liberalisation efforts (Downes, 2009). Though financial liberalisation cannot be eliminated due to the ever-present influence of globalisation, institutions and legal systems to deal with threats and risks are more likely to take precedence in the expected financial reforms. Though it may not be possible to undo the levels of financial liberalisation that has so far been attained, nations are less likely to increase their liberalisation efforts without proper legal and institutional structures (Downes, 2009). This is a possible explanation to the observed differences in the role of financial liberation as compared to legal and institutional structures in the post economic crisis period. This clearly reiterates the position that the nature of the 2008 economic crisis played a vital role in influencing the variables that affect financial development in post-crisis economies.

Strengthening financial systems have historically played a central role in determining the levels of financial development that nations can attain. This is mainly because the availability of funds to start and facilitate financial development is dependent on the strength of the financial institutions and intermediaries. Failure of financial intermediaries and institutions as brought out in the 2008 economic crisis can be catastrophic on financial development (Armour, Deakin, Mollica,  Siems, 2009). The role played by strengthening financial systems in influencing financial development has increased after the crisis due to the blow financial systems suffered as a result of the crisis. Strengthening financial systems is a fundamental issue to supporting financial development thus its high rating in the post crisis environment is expected.

A holistic approach to financial development is essential in ensuring sustained gains. A review of nations that boast of high levels of financial development reveals that they have strengthened nearly every aspects of their economy that supports and contributed to financial development. Different variables influence economic and financial development. An analysis of the macro-environment to determine these variables is essential thus the existence of frameworks that allow for holistic analysis (Armour, Deakin, Mollica,  Siems, 2009). To attain sustained financial development, different variables that influence financial development have to be adequately supported.

There are clear differences in the results obtained by using the bivariate Pearsons correlations coefficient analysis and linear regression based on the model FD b0b1EGb2IFb3IVb4ED. Linear regression analysis is adopted as the main data collection analysis and its findings taken to be representative of the scenario on the ground. The main consideration in this move is the fact that financial development has already shown to be a factor that is affected by multiple variables. This implies that though individual factors influence financial development they cannot be fully accountable for the changes in financial development. Therefore linear regression analysis which adopted a model that is closer to the actual financial scenario is likely to provide more accurate answers. Results from the regression analysis show that the model for financial development prior to and after the financial crisis is different. Financial development before the crisis could be calculated by the formula FD -1639.314924.64EG-230.096IF-6.214IV2.111ED. On the other hand, financial development after the financial crisis can be calculated by using the formula FD1935.48-593.95EG-277.32IF1.974IV0.6419ED. The values adopted by the regression coefficients differ and therefore the models are different. This is brought out by assuming that in either case all the predictors taken on the value zero. Before the financial crisis zero values for the predictor variables would have resulted in -1639.314 Billion dollars growth. On the other hand, zero values for the predictor variables would have resulted in financial development of 1935 Billion dollars. This clearly shows that the levels of financial development are higher in the post crisis environment compared to the pre-economic crisis environment. This is contrary to expectations considering that various financial institutions were badly affected by financial institutions. However, if analysed from the perspective of reconstruction it is possible that the high levels of financial growth being recorded in the post crisis financial environment is reflective of the exponential phase in financial development as a result of the reconstruction efforts.

 Chapter Five Conclusion and Recommendations
This is the final chapter of the dissertation. The chapter seeks to determine if the overall significance of the study has been attained and provides recommendations based on the findings made in the study. Additionally, the chapter provides a summary of the key findings and an assessment of whether the study has been successful.

5.1. Conclusion
The study findings show that the methodological strategies adopted in analysing the problem have significant effects on the accuracy and reliability of the findings. This is an area of key concern considering the policy implications associated with the findings. Another important finding is that the financial environment before and after the financial crisis is different. The economic crisis was an event of immense magnitude and resulted in a different financial development model. This is an issue of critical importance to policy makers and financial analysts who must be continually wary of the changes in the predictor variables to financial development and develop models that show appreciation of the variables.

The major findings in the study are that economic growth is a major determinant of financial development prior to and after the financial crisis. Another important predictor variable to financial development is the levels of inflation. The levels of inflations have to be kept sufficiently low to reduce the negative effects that this variable has on financial development. A realistic view of the models is also important in the sense that the magnitude of the expected values has to be considered. This is brought out clearly by the fact that inflation is expected to take on values between 1 and 20 whereas investment and external debts may take on thousands. This implies that though inflation has a larger coefficient and is therefore assumed to be highly influential, when calculating the actual financial development inflation will contribute less as compared to other variables. This is an issue that affects the translations and inference of the results in practice that has to be looked at further.

5.2. Recommendations
The study has established that though the variables affecting financial development have fundamentally remained unchanged in the aftermath of the 2008 economic crisis, their roles and contribution to financial development has been altered significantly. This effectively implies that policy makers have to channel their efforts to strengthening financial systems and recovery from the financial crisis as part of efforts to improve financial development. The study further asserts that financial liberalisation which was prevalent before the 2008 economic crisis will have to be controlled in the post crisis period since its influence on financial development is constrained and may be influence by the existence of supporting institutions and legal systems.

Another important finding from the study is that a holistic approach to supporting financial development is important in both normal financial times and after the 2008 economic crisis. Though the weight awarded to variables may differ, they are all significant to financial development. To attain sustainable development, nations and individual institutions should seek to develop an environment that compliments different factors that influence financial development. This requires additional research on a host of other factors for instance cultural orientation and geographical positioning that have shown causal relationship with financial development. Analysts have to research more into variables that affect financial development and complex models that complement the need for a holistic approach to supporting financial development.