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Limited Enforcement, Financial Intermediation, And Economic Development: A Quantitative Assessment

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  • Pedro S. Amaral
  • Erwan Quintin

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. Copyright (2010) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 51 (2010)
Issue (Month): 3 (08)
Pages: 785-811

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Handle: RePEc:ier:iecrev:v:51:y:2010:i:3:p:785-811

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Cited by:
  1. Samuel E. Henly & Juan M. Sanchez, 2009. "The U.S. establishment-size distribution: secular changes and sectoral decomposition," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Fall, pages 419-454.
  2. Simon Gilchrist & Jae W. Sim & Egon Zakrajsek, 2012. "Misallocation and financial market frictions: some direct evidence from the dispersion in borrowing costs," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2012-08, Board of Governors of the Federal Reserve System (U.S.).
  3. Leal Ordóñez, Julio C., 2010. "Informal sector, productivity, and tax collection," MPRA Paper 26058, University Library of Munich, Germany, revised Oct 2010.
  4. Lu, Shu-Shiuan, 2013. "The role of capital market efficiency in long-term growth: A quantitative exploration," Journal of Macroeconomics, Elsevier, Elsevier, vol. 36(C), pages 161-174.
  5. Yongseok Shin & Joe Kaboski & Francisco J. Buera, 2008. "Finance and Development: A Tale of Two Sectors," 2008 Meeting Papers 955, Society for Economic Dynamics.
  6. Lian Allub & Andres Erosa Etchebehere, 2014. "Financial frictions, occupational choice and economic inequality," Economics Working Papers we1413, Universidad Carlos III, Departamento de Economía.
  7. Bernardo Morais, 2011. "Should I Stay or Should I Go: Investor Protection, Firm Selection and Aggregate Productivity," 2011 Meeting Papers 878, Society for Economic Dynamics.
  8. Abdullah Ibrahim NAZAL, 2014. "Evaluate Local Private Companies Developing Strategy to Solve Crises," Expert Journal of Economics, Sprint Investify, vol. 2(1), pages 30-39.
  9. Kaoru Hosono & Miho Takizawa, 2012. "Do Financial Frictions Matter as a Source of Misallocation? Evidence from Japan," Discussion papers, Policy Research Institute, Ministry of Finance Japan ron246, Policy Research Institute, Ministry of Finance Japan.
  10. Bah, El-hadj M. & Fang, Lei, 2011. "Impact of the business environment on output and productivity in Africa," MPRA Paper 32517, University Library of Munich, Germany.
  11. Diagne, Youssoupha S, 2013. "Impact of business environment on investment and output of manufacturing firms in Senegal," MPRA Paper 54227, University Library of Munich, Germany.
  12. Ashantha Ranasinghe, 2012. "Property Rights, Extortion and the Misallocation of Talent," 2012 Meeting Papers, Society for Economic Dynamics 293, Society for Economic Dynamics.
  13. Diego Restuccia & Richard Rogerson, 2013. "Misallocation and productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 1-10, January.
  14. Marimon, Ramon & Quadrini, Vincenzo, 2011. "Competition, human capital and income inequality with limited commitment," Journal of Economic Theory, Elsevier, vol. 146(3), pages 976-1008, May.

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