Advanced Search
MyIDEAS: Login to save this paper or follow this series

How does Investors' Legal Protection affect Productivity and Growth?

Contents:

Author Info

  • Binyamin Berdugo

    ()
    (Department of Economics, Ben-Gurion University of the Negev)

  • Sharon Hadad

    (Ben-Gurion University of the Negev)

Registered author(s):

    Abstract

    This paper analyzes the implications of investors' legal protection on aggregate productivity and growth. We have two main results. First, that better investors' legal protection can mitigate agency problems between investors and innovators and therefore expand the range of high-tech projects that can be financed by non-bank investors. Second, investors' legal protection shifts investment resources from less productive (medium-tech) to highly productive (high-tech) projects and therefore enhances economic growth. These results stem from two forces. On one hand, private investors' moral hazard problems (in which entrepreneurs shift investors' resources to their own benefit), and on the other hand innovators' risk of project termination by banks due to wrong signals about projects' probability of success. Our results are consistent with recent empirical studies that show a high correlation between legal investors' protection and the structure of the financial system as well as the economic performance at industry and macroeconomic levels.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.ec.bgu.ac.il/monaster/admin/papers/0908.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Ben-Gurion University of the Negev, Department of Economics in its series Working Papers with number 0908.

    as in new window
    Length: 38 pages
    Date of creation: 2009
    Date of revision:
    Handle: RePEc:bgu:wpaper:0908

    Contact details of provider:
    Postal: P.O.B 653, Beer-Sheva 84105
    Phone: +972-8-647-2268
    Fax: +972-8-647-2941
    Web page: http://www.ec.bgu.ac.il/
    More information through EDIRC

    Related research

    Keywords:

    References

    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.:
    as in new window
    1. Jeffrey Wurgler, 1999. "Financial Markets And The Allocation Of Capital," Yale School of Management Working Papers ysm123, Yale School of Management, revised 01 Mar 2001.
    2. Bencivenga, Valerie R & Smith, Bruce D, 1991. "Financial Intermediation and Endogenous Growth," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 195-209, April.
    3. Allen, Franklin & Gale, Douglas, 1999. "Diversity of Opinion and Financing of New Technologies," Journal of Financial Intermediation, Elsevier, vol. 8(1-2), pages 68-89, January.
    4. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
    5. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
    6. Hicks, J. R., 1969. "A Theory of Economic History," OUP Catalogue, Oxford University Press, number 9780198811633, September.
    7. Shankha Chakraborty & Tridip Ray, 2003. "Bank-based versus Market-based Financial Systems: A Growth-theoretic Analysis," University of Oregon Economics Department Working Papers 2003-6, University of Oregon Economics Department, revised 01 Feb 2002.
    8. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
    9. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
    10. Carlin, Wendy & Mayer, Colin, 2003. "Finance, investment, and growth," Journal of Financial Economics, Elsevier, vol. 69(1), pages 191-226, July.
    11. Chenggang Xu & Haizhou Huang, 1999. "Institutions, innovations, and Growth," IMF Working Papers 99/34, International Monetary Fund.
    12. Haidar, Jamal Ibrahim, 2009. "Investor protections and economic growth," Economics Letters, Elsevier, vol. 103(1), pages 1-4, April.
    13. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November.
    14. Alwyn Young, 1998. "Growth without Scale Effects," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 41-63, February.
    15. de la Fuente, Angel & Marin, JoseMaria, 1996. "Innovation, bank monitoring, and endogenous financial development," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 269-301, October.
    16. Knetsch, Jack L., 1992. "Preferences and nonreversibility of indifference curves," Journal of Economic Behavior & Organization, Elsevier, vol. 17(1), pages 131-139, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:bgu:wpaper:0908. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Aamer Abu-Qarn).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.