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Financial Distortions and Economic Growth: Empirical Evidence

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  • Fuhmei Wang
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    Abstract

    Conventional wisdom suggests a negative relation between financial distortions and economic growth. This paper incorporates the financial premium, a good proxy for the degree of restrictions on financial transactions, into a standard AK-type endogenous growth model. The analytical results suggest that such a relationship does not exist. Economic growth is insulated by the financial premium, contrasting with previously held beliefs. Agents' patience and the attitude of relative risk aversion are noteworthy in explaining the effects of external distortions on economic growth. Our findings may apply to economies with parallel exchange markets.

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    File URL: http://mesharpe.metapress.com/link.asp?target=contribution&id=94032516764N2581
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    Bibliographic Info

    Article provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.

    Volume (Year): 45 (2009)
    Issue (Month): 3 (May)
    Pages: 56-66

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    Handle: RePEc:mes:emfitr:v:45:y:2009:i:3:p:56-66

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    Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024

    Related research

    Keywords: economic growth; financial distortions; financial premium;

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