LIMITED ENFORCEMENT, FINANCIAL INTERMEDIATION, AND ECONOMIC DEVELOPMENT: A QUANTITATIVE ASSESSMENT*

Pedro S. Amaral · Erwan Quintin

143 citations0/0 files storedInternational Economic Review

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Law, Economics, and Judicial Systems Economic Growth and Productivity Economic theories and models

Abstract

We present a model of economic development where the importance of financial differences caused by limited enforcement can be measured. Economies where enforcement is poor direct less capital to the production sector and employ less efficient technologies. Calibrated simulations reveal that the resulting effect on output is large. Furthermore, the model correctly predicts that the average scale of production should rise with the quality of enforcement. Finally, we find that the importance of limited enforcement rises with the importance of capital in production.

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References

1993Finance and Growth: Schumpeter Might Be Right 1999Why do Some Countries Produce So Much More Output Per Worker than Others?2000Financial intermediation and growth: Causality and causes 2004Finance and Growth: Theory and Evidence 1974Money and Capital in Economic Development.1978On the Size Distribution of Business Firms 1993Occupational Choice and the Process of Development 1974Shaw, Edward S., Financial Deepening in Economic Development, New York, Oxford University Press, 1973, xii + 260 pp. ($7.50 cloth, $3.50 paper)

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