A Theory of Growth, Financial Development and Trade

Keith Blackburn · Victor T. Y. Hung

319 citations0/0 files storedEconomica

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Monetary Policy and Economic Impact Economic Growth and Productivity Economic theories and models

Abstract

This paper presents an analysis of the joint determination of real and financial development. Privately informed designers obtain external finance for their research projects through incentive‐compatible loan contracts. Contracts are enforced through costly monitoring activity which lenders may either undertake themselves, or delegate to a financial intermediary. The analysis establishes a positive, two‐way causal relationship between growth and financial development. In addition, using a multi‐country version of the model, it is shown how both financial and trade liberalization can accelerate the development of intermediation; only trade liberalization has a direct positive effect on growth, however.

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References

1989Endogenous Technological Change 1984Financial Intermediation and Delegated Monitoring 1991A SENSITIVITY ANALYSIS OF CROSS-COUNTRY GROWTH REGRESSIONS 1988Agency Costs, Net Worth, And Business Fluctuations 1974Money and Capital in Economic Development.1979Optimal contracts and competitive markets with costly state verification 1995R & D-Based Models of Economic Growth 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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