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Financial development and growth

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Author Info

  • Zsolt Becsi
  • Ping Wang

Abstract

Poor performance by the financial sector can be costly for society. On the other hand, a healthy banking sector has been thought by some to contribute to the growth of the economy. Recently, though, economists have begun to analyze new elements of the linkages between the financial and real sides of the economy. ; This article provides an illustrative model that is meant to capture current thinking about the ways in which financial intermediaries affect growth. The model shows how households, firms, and financial intermediaries interact to determine equilibrium growth rates and various interest rates and rate spreads. It is also used to discuss the effects of repressive financial policies such as reserve requirements, interest rate controls, and entry limitations such as barriers to interstate banking. ; The authors survey recent empirical literature on growth and financial intermediation, which has shown that different measures of financial development are positively correlated with economic growth rates. They conclude that although there have been some attempts to quantify the effect of financial repression, attempting precise policy recommendations would be premature.

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Bibliographic Info

Article provided by Federal Reserve Bank of Atlanta in its journal Economic Review.

Volume (Year): (1997)
Issue (Month): Q 4 ()
Pages: 46-62

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Handle: RePEc:fip:fedaer:y:1997:i:q4:p:46-62:n:v.82no.4

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Related research

Keywords: Banking structure ; Financial institutions ; Financial services industry;

References

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  1. Sherrill Shaffer, 1994. "Market conduct and aggregate excess capacity in banking: a cross- country comparison," Working Papers 93-28/R, Federal Reserve Bank of Philadelphia.
  2. Roubini, Nouriel & Sala-i-Martin, Xavier, 1992. "Financial repression and economic growth," Journal of Development Economics, Elsevier, vol. 39(1), pages 5-30, July.
  3. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411.
  4. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  5. Mayer, Colin, 1987. "New Issues in Corporate Finance," CEPR Discussion Papers 181, C.E.P.R. Discussion Papers.
  6. Mankiw, N. Gregory, 1988. "New issues in corporate finance : Colin Mayer," European Economic Review, Elsevier, vol. 32(5), pages 1183-1186, June.
  7. Sussman, Oren & Zeira, Joseph, 1995. "Banking and Development," CEPR Discussion Papers 1127, C.E.P.R. Discussion Papers.
  8. Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April.
  9. Petersen, Mitchell A & Rajan, Raghuram G, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 407-43, May.
  10. Vives, Xavier, 1990. "Banking Competition and European Integration," CEPR Discussion Papers 373, C.E.P.R. Discussion Papers.
  11. Saint-Paul, Gilles, 1992. "Technological choice, financial markets and economic development," European Economic Review, Elsevier, vol. 36(4), pages 763-781, May.
  12. McAllister, Patrick H. & McManus, Douglas, 1993. "Resolving the scale efficiency puzzle in banking," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 389-405, April.
  13. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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Citations

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Cited by:
  1. Becsi, Zsolt & Li, Victor E. & Wang, Ping, 2005. "Heterogeneous borrowers, liquidity, and the search for credit," Journal of Economic Dynamics and Control, Elsevier, vol. 29(8), pages 1331-1360, August.
  2. Been-Lon Chen & Yeong-Yuh Chiang & Ping Wang, 2000. "Credit Market Imperfections, Financial Activity and Economic Growth," Vanderbilt University Department of Economics Working Papers 0020, Vanderbilt University Department of Economics.
  3. Zsolt Becsi & Ping Wang & Mark A. Wynne, 1998. "Endogenous market structures and financial development," Working Paper 98-15, Federal Reserve Bank of Atlanta.
  4. Deodat E. Adenutsi & Meshach J. Aziakpono & Matthew K. Ocran, 2011. "The Changing Impact Of Macroeconomic Environment On Remittance Inflows In Sub-Saharan Africa," Journal of Academic Research in Economics, Spiru Haret University, Faculty of Accounting and Financial Management Constanta, vol. 3(2 (July)), pages 136-167.
  5. Zsolt Becsi & Victor Li & Ping Wang, 2000. "Financial Matchmakers in Credit Markets with Heterogeneous Borrowers," Vanderbilt University Department of Economics Working Papers 0032, Vanderbilt University Department of Economics.
  6. Been-Lon Chen & Yeong-Yuh Chiang & Ping Wang, 2008. "Credit Market Imperfections and Long-Run Macroeconomic Consequences," Annals of Economics and Finance, Society for AEF, vol. 9(1), pages 151-175, May.
  7. Hung, Fu-Sheng, 2003. "Inflation, financial development, and economic growth," International Review of Economics & Finance, Elsevier, vol. 12(1), pages 45-67.
  8. Neville N. Jiang & Ping Wang & Haibin Wu, 2002. "Finance Thy Growth: The Role of Occupational Choice By Ability-Heterogeneous Agents," Vanderbilt University Department of Economics Working Papers 0228, Vanderbilt University Department of Economics, revised Oct 2003.
  9. Fink, Gerhard & Haiss, Peter & Vuksic, Goran, 2009. "Contribution of financial market segments at different stages of development: Transition, cohesion and mature economies compared," Journal of Financial Stability, Elsevier, vol. 5(4), pages 431-455, December.
  10. Zsolt Becsi & Ping Wang & Mark A. Wynne, 1998. "Costly intermediation and the big push," Working Paper 98-16, Federal Reserve Bank of Atlanta.
  11. Santiago Carbó Valverde & Francisco Rodríguez Fernández, 2004. "The finance-growth nexus: a regional perspective," Economic Working Papers at Centro de Estudios Andaluces E2004/44, Centro de Estudios Andaluces.
  12. Capasso, Salvatore, 2006. "Stock Market Development and Economic Growth," Working Paper Series RP2006/102, World Institute for Development Economic Research (UNU-WIDER).
  13. Hassan, M. Kabir & Sanchez, Benito & Yu, Jung-Suk, 2011. "Financial development and economic growth: New evidence from panel data," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(1), pages 88-104, February.
  14. Perera, N. & Paudel, R.C., 2009. "Financial Development and Economic Growth in Sri Lanka," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 9(1).
  15. Becsi, Zsolt & Wang, Ping & Wynne, Mark A., 1999. "Costly intermediation, the big push and the big crash," Journal of Development Economics, Elsevier, vol. 59(2), pages 275-293, August.
  16. Mannonen, Pekka, 2001. "Advancing information technology and financial intermediation," Discussion Papers 770, The Research Institute of the Finnish Economy.

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