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Financial Intermediation, Variability and the Development Process

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  • Luis Carranza
  • Jose E. Galdon-Sanchez

Abstract

In this paper we have built a model of financial intermediation that explains the GDP variability pattern of an economy during the development process. In our model, per capita is more volatile in the middle-income economies than in both low and high-income economies. We show that, if the model economy is in the early or in the mature stages of development there is a unique equilibrium. However, in the middle stages of development multiple equilibria arise. Moreover, we find that in economies with imperfect credit markets, per capita output volatility tends to be higher than in economies with perfect or non-existent credit markets.

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File URL: http://sticerd.lse.ac.uk/dps/de/dedps21.pdf
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Bibliographic Info

Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers with number 21.

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Date of creation: Mar 2000
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Handle: RePEc:cep:stidep:21

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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

Related research

Keywords: Externalities; market imperfections; growth; multiple equilibria; sunspot equilibria;

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  1. Luis Carranza & José Enrique Galdón-Sánchez, 1998. "Multiple Equilibrium, Variability, and the Development Process," IMF Working Papers 98/62, International Monetary Fund.
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Cited by:
  1. Schclarek, Alfredo, 2006. "Industry Diversification, Financial Development and Productivity-Enhancing Investments," Working Papers 2006:19, Lund University, Department of Economics.

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