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Financial development and growth

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Author Info
Zsolt Becsi
Ping Wang

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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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Publisher 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 listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. 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. [Downloadable!] (restricted)
  2. Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April. [Downloadable!] (restricted)
  3. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," Journal of Business, University of Chicago Press, vol. 34, pages 411. [Downloadable!]
  4. Mayer, Colin, 1988. "New issues in corporate finance," European Economic Review, Elsevier, vol. 32(5), pages 1167-1183, June. [Downloadable!] (restricted)
    Other versions:
  5. Sussman, Oren & Zeira, Joseph, 1995. "Banking and Development," CEPR Discussion Papers 1127, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
    Other versions:
  7. 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.
  8. Saint-Paul, Gilles, 1992. "Technological choice, financial markets and economic development," European Economic Review, Elsevier, vol. 36(4), pages 763-781, May. [Downloadable!] (restricted)
    Other versions:
  9. Mankiw, N. Gregory, 1988. "New issues in corporate finance : Colin Mayer," European Economic Review, Elsevier, vol. 32(5), pages 1183-1186, June. [Downloadable!] (restricted)
  10. Paul Wachtel & Peter Rousseau, 1994. "Financial Intermediation and Economic Growth: A Historical Comparison of the U.S., U.K. and Canada," Working Papers 94-04, New York University, Leonard N. Stern School of Business, Department of Economics.
  11. Vives, Xavier, 1990. "Banking Competition and European Integration," CEPR Discussion Papers 373, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  13. Roubini, Nouriel & Sala-i-Martin, Xavier, 1992. "Financial repression and economic growth," Journal of Development Economics, Elsevier, vol. 39(1), pages 5-30, July. [Downloadable!] (restricted)
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  14. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Zsolt Becsi & Ping Wang & Mark A. Wynne, 1998. "Costly intermediation and the big push," Working Paper 98-16, Federal Reserve Bank of Atlanta. [Downloadable!]
  2. 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. [Downloadable!]
  3. Been-Lon Chen & Yeong-Yuh Chiang & Ping Wang, 2000. "Credit Market Imperfections, Financial Activity and Economic Growth," Working Papers 0020, Department of Economics, Vanderbilt University. [Downloadable!]
  4. Zsolt Becsi & Victor Li & Ping Wang, 2000. "Financial matchmakers in credit markets with heterogeneous borrowers," Working Paper 2000-14, Federal Reserve Bank of Atlanta. [Downloadable!]
    Other versions:
  5. Pekka Mannonen, 2001. "Advancing information technology and financial intermediation," Discussion Papers 770, The Research Institute of the Finnish Economy. [Downloadable!]
  6. Zsolt Becsi & Ping Wang & Mark A. Wynne, 1998. "Endogenous market structures and financial development," Working Paper 98-15, Federal Reserve Bank of Atlanta. [Downloadable!]
  7. Capasso, Salvatore, 2006. "Stock Market Development and Economic Growth," Working Papers RP2006/102, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  8. Neville N. Jiang & Ping Wang & Haibin Wu, 2002. "Finance Thy Growth: The Role of Occupational Choice By Ability-Heterogeneous Agents," Working Papers 0228, Department of Economics, Vanderbilt University, revised Oct 2003. [Downloadable!]
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