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Threshold Effect and Financial Intermediation in Economic Development

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  • Laurent Augier

    ()
    (Université de Poitiers-CRIEF and Université de La Rochelle)

  • Wahyoe Soedarmono

    ()
    (Université de Limoges, LAPE)

Abstract

This paper reformulates the finance-growth nexus in the case of developing countries. Using the Neoclassical growth framework, our contribution is threefold. First, we show that entrepreneurship is a growth-enhancing factor in both financial intermediary equilibrium and financial market equilibrium. Second, we show that agent's saving is one of the determinants of the optimal proportion of long-term investment and hence, we characterize the role of bank as financial intermediary. Third, our model is characterized by the existence of multiple steady states equilibrium with threshold effect that impedes the economy to reach a long-run higher steady state equilibrium. Furthermore, we show that financial intermediary is better than financial market, in order to reduce threshold effect and to ensure the long-run steady state equilibrium of capital stock.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 31 (2011)
Issue (Month): 1 ()
Pages: 342-357

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Handle: RePEc:ebl:ecbull:eb-10-00619

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Keywords: Threshold Effect; Financial Intermediary; Economic Growth; Developing Countries;

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Citations

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Cited by:
  1. Jean-pierre Allegret & Sana Azzabi, 2013. "Financial development, threshold effects and convergence in developing and emerging countries," Economics Bulletin, AccessEcon, vol. 33(3), pages 1899-1921.
  2. Stolbov, Mikhail, 2013. "The finance-growth nexus revisited: From origins to a modern theoretical landscape," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 7(2), pages 1-22.
  3. Wahyoe Soedarmono & Amine Tarazi, 2013. "Bank Opacity, Intermediation Cost and Globalization: Evidence from a Sample of Publicly Traded Banks in Asia," Working Papers, HAL hal-00916564, HAL.

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