Advanced Search
MyIDEAS: Login

Quantifying the Impact of Financial Development on Economic Development

Contents:

Author Info

Abstract

How important is financial development for economic development? A costly state verification model of financial intermediation is presented to address this question. The model is calibrated to match facts about the U.S. economy, such as intermediation spreads and the firm-size distribution for the years 1974 and 2004. It is then used to study the international data, using cross-country interest-rate spreads and per-capita GDP. The analysis suggests a country like Uganda could increase its output by 116% if it could adopt the world's best practice in the financial sector. Still, this amounts to only 29% of the gap between Uganda's potential and actual output.

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.jeremygreenwood.net/papers/gsw13.pdf
File Function: full text
Download Restriction: None

Bibliographic Info

Paper provided by Economie d'Avant Garde in its series Economie d'Avant Garde Research Reports with number 17.

as in new window
Length: 45 pages
Date of creation: Feb 2010
Date of revision:
Handle: RePEc:eag:rereps:17

Contact details of provider:
Web page: http://www.jeremygreenwood.net/EAG.htm

Related research

Keywords: costly state verification; economic development; financial intermediation; firm-size distribution; interest-rate spreads; cross-country output differences; cross-country differences in financial sector productivity; cross-country TFP differences;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

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. Richard Rogerson & Diego Restuccia, 2004. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," 2004 Meeting Papers 69, Society for Economic Dynamics.
  2. Rui Castro & Gian Luca Clementi & Glenn McDonald, 2007. "Legal Institutions, Sectoral Heterogeneity, and Economic Development," Working Paper Series 05-07, The Rimini Centre for Economic Analysis, revised Jul 2007.
  3. Greenwood, Jeremy & Sanchez, Juan M & Wang, Cheng, 2007. "Financing Development: The Role of Information Costs," Staff General Research Papers 12848, Iowa State University, Department of Economics.
  4. Greenwood, J. & Jovanovic, B., 1988. "Financial Development, Growth, And The Distribution Of Income," RCER Working Papers 131, University of Rochester - Center for Economic Research (RCER).
  5. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 717-37, August.
  6. Robert M. Townsend & Kenichi Ueda, 2010. "Welfare Gains From Financial Liberalization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(3), pages 553-597, 08.
  7. Juan Carlos Conesa & Dirk Krueger, 2004. "On the Optimal Progressivity of the Income Tax Code," Working Papers 131, Barcelona Graduate School of Economics.
  8. Yongseok Shin & Joe Kaboski & Francisco J. Buera, 2008. "Finance and Development: A Tale of Two Sectors," 2008 Meeting Papers 955, Society for Economic Dynamics.
  9. Siegel, Jeremy J., 1992. "The real rate of interest from 1800-1990 : A study of the U.S. and the U.K," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 227-252, April.
  10. Xu Yi & Nezih Guner & Gustavo Ventura, 2005. "Macroeconomic Implications of Size Dependent Policies," 2005 Meeting Papers 530, Society for Economic Dynamics.
  11. Li Wenli & Pierre -Daniel Sarte, 2004. "Progressive Taxation and Long-Run Growth," American Economic Review, American Economic Association, vol. 94(5), pages 1705-1716, December.
  12. David Domeij & Jonathan Heathcote, 2004. "On The Distributional Effects Of Reducing Capital Taxes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 523-554, 05.
  13. Boyd, John H. & Prescott, Edward C., 1986. "Financial intermediary-coalitions," Journal of Economic Theory, Elsevier, vol. 38(2), pages 211-232, April.
  14. Lu, Shu-Shiuan, 2013. "The role of capital market efficiency in long-term growth: A quantitative exploration," Journal of Macroeconomics, Elsevier, vol. 36(C), pages 161-174.
  15. Virgiliu Midrigan & Daniel Yi Xu, 2010. "Finance and Misallocation: Evidence from Plant-level Data," NBER Working Papers 15647, National Bureau of Economic Research, Inc.
  16. Andres Erosa & Ana Hidalgo, 2005. "On Capital Market Imperfections as a Source of Low TFP and Economic Rents," Working Papers tecipa-200, University of Toronto, Department of Economics.
  17. Francesco Caselli & Nicola Gennaioli, 2006. "Dynastic management," LSE Research Online Documents on Economics 3558, London School of Economics and Political Science, LSE Library.
  18. Carol A. Corrado & Charles R. Hulten & Daniel E. Sichel, 2006. "Intangible Capital and Economic Growth," NBER Working Papers 11948, National Bureau of Economic Research, Inc.
  19. Rajnish Mehra & Edwarad C Prescott & Facundo Piguillem, 2007. "Intermediated Quantities and Returns," Levine's Bibliography 122247000000001580, UCLA Department of Economics.
  20. Beck, H.T.L. & Demirgüç-Kunt, A. & Maksimovic, V., 2006. "The influence of financial and legal institutions on firm size," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125428, Tilburg University.
  21. Ana Hidalgo & Andres Erosa, 2004. "On Capital Market Imperfections as an Origin of Low TFP and Economic Rents," 2004 Meeting Papers 16, Society for Economic Dynamics.
  22. Andres Erosa, 2001. "Financial Intermediation and Occupational Choice in Development," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 303-334, April.
  23. Robert Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report 45, Federal Reserve Bank of Minneapolis.
  24. Juan Sanchez & Jeremy Greenwood & Harold Cole, 2012. "Why Doesn't Technology Flow from Rich to Poor Countries?," 2012 Meeting Papers 834, Society for Economic Dynamics.
  25. Gomme, Paul & Rupert, Peter, 2007. "Theory, measurement and calibration of macroeconomic models," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 460-497, March.
  26. Rui Castro & Gian Luca Clementi & Glenn MacDonald, 2004. "Investor Protection, Optimal Incentives, and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 119(3), pages 1131-1175, August.
  27. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 1999. "A new database on financial development and structure," Policy Research Working Paper Series 2146, The World Bank.
  28. Rajnish Mehra & Facundo Piguillem & Edward C. Prescott, 2011. "Costly financial intermediation in neoclassical growth theory," Quantitative Economics, Econometric Society, vol. 2(1), pages 1-36, 03.
  29. Williamson, Stephen D., 1986. "Costly monitoring, financial intermediation, and equilibrium credit rationing," Journal of Monetary Economics, Elsevier, vol. 18(2), pages 159-179, September.
  30. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
  31. Berger, Allen N, 2003. " The Economic Effects of Technological Progress: Evidence from the Banking Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(2), pages 141-76, April.
  32. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-63, July.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Cândida Ferreira, 2013. "Bank performance and economic growth: evidence from Granger panel causality estimations," Working Papers Department of Economics 2013/21, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  2. Jonathan Chiu & Cesaire Meh & Randall Wright, 2013. "Innovation and growth with financial, and other, frictions," CQER Working Paper 2013-01, Federal Reserve Bank of Atlanta.
  3. Rodolfo E. Manuelli & Adrian Peralta-Alva, 2011. ""Frictions in financial and labor markets": a summary of the 35th Annual Economic Policy Conference," Review, Federal Reserve Bank of St. Louis, issue July, pages 273-292.
  4. repec:fip:fedreq:y:2011:i:3q:p:329-357:n:vol.97no.3 is not listed on IDEAS
  5. Diego Restuccia, 2011. "Recent developments in economic growth," Economic Quarterly, Federal Reserve Bank of Richmond, issue 3Q, pages 329-357.
  6. Ahrang Lee, 2013. "Welfare Losses from Financial Frictions: The Role of Fixed Costs," 2013 Meeting Papers 1359, Society for Economic Dynamics.
  7. Pasali, Selahattin Selsah, 2013. "Where is the cheese ? synthesizing a giant literature on causes and consequences of financial sector development," Policy Research Working Paper Series 6655, The World Bank.
  8. Ashantha Ranasinghe, 2012. "Property Rights, Extortion and the Misallocation of Talent," 2012 Meeting Papers 293, Society for Economic Dynamics.
  9. Shah, Ajay & Patnaik, Ila, 2011. "Reforming the Indian financial system," Working Papers 11/80, National Institute of Public Finance and Policy.
  10. Juan Sanchez & Jeremy Greenwood & Harold Cole, 2012. "Why Doesn't Technology Flow from Rich to Poor Countries?," 2012 Meeting Papers 834, Society for Economic Dynamics.
  11. Lu, Shu-Shiuan, 2013. "The role of capital market efficiency in long-term growth: A quantitative exploration," Journal of Macroeconomics, Elsevier, vol. 36(C), pages 161-174.
  12. Egon Zakrajsek & Simon Gilchrist, 2011. "Misallocation Losses Owing to Financial Distortions: Direct Evidence From Dispersion in Borrowing Costs," 2011 Meeting Papers 1390, Society for Economic Dynamics.
  13. 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.

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:eag:rereps:17. 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: (Jeremy Greenwood).

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.