The effect of intelligence on financial development: A cross-country comparison

Article history: Received 27 January 2015 Received in revised form 18 April 2015 Accepted 22 April 2015 Available online 20 May 2015 We assess the correlations between intelligence and financial development in 123 countries using data averages from 2000–2010. Cognitive human capital is measured in terms of IQ (Lynn and Vanhanen's IQ measures), cognitive ability (Rindermann's combination of psychometric and student assessment test measures) and cognitive skills (Hanushek's student assessment test measures),while financial development is appreciated both from financial intermediary and stock market development perspectives. Short-term financial measures are private and domestic credits whereas long-term financial indicators include: stock market capitalization, stock market value traded and turnover ratio. The following findings are established based on standardized correlations. (1) For the nexus with private credit, the positive correlations of IQ and cognitive ability are broadly similar, while that of cognitive skills is lower relative to cognitive ability. (2) The correlation between intelligence and other financial variables are broadly similar, but for the higher degree of association with stock market value traded. (3) The underlying findings are broadly confirmed in terms of sign of correlation, though the magnitude of correlation is higher (lower) with the addition of social capital or ethnic fractionalization (institutions or income). (4) When continents are excluded to control for extreme effects, baseline results are confirmed and the following on order of continental importance in financial development is established in increasing magnitude: Americas, Europe, Oceania, Africa and Asia. © 2015 Elsevier Inc. All rights reserved.