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Financial Intermediation and Endogenous Growth

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  • Valerie R. Bencivenga
  • Bruce D. Smith

Abstract

An endogenous growth model with multiple assets is developed. Agents who face random future liquidity needs accumulate capital and a liquid, but unproductive asset. The effects of introducing financial intermediation into this environment are considered. Conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital, causing intermediation to be growth promoting. In addition, intermediaries generally reduce socially unnecessary capital liquidation, again tending to promote growth.

Suggested Citation

  • Valerie R. Bencivenga & Bruce D. Smith, 1991. "Financial Intermediation and Endogenous Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 195-209.
    • Handle: RePEc:oup:restud:v:58:y:1991:i:2:p:195-209.
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    File URL: http://hdl.handle.net/10.2307/2297964
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