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Endogenous market structures and financial development

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Author Info
Zsolt Becsi
Ping Wang
Mark A. Wynne

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Abstract

Existing theories that emphasize the significance of financial intermediation for economic development have not addressed two important empirical facts: (i) the relationship between financial and real activities depends crucially on the stage of development, and (ii) financial and industrial market structures vary widely across otherwise similar countries. To explain these observations, we develop a dynamic general equilibrium model allowing for endogenous market structures in which financial deepening spurs real activity through intermediate product broadening. We show the possibility of multiple steady-state equilibria and characterize how these equilibria respond to various shocks. In particular, we examine the determinants of financial deepening, product broadening, the saving rate, the loan-deposit interest rate spread, and the degree of competitiveness of financial and product markets. We find that the dynamic interactions between financial and real activities depend critically on the synergy of financial and industrial competitiveness.

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Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 98-15.

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Date of creation: 1998
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Handle: RePEc:fip:fedawp:98-15

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Keywords: Economic development

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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.:
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  5. Sussman, Oren & Zeira, Joseph, 1995. "Banking and Development," CEPR Discussion Papers 1127, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Besley, Timothy & Coate, Stephen & Loury, Glenn, 1993. "The Economics of Rotating Savings and Credit Associations," American Economic Review, American Economic Association, vol. 83(4), pages 792-810, September. [Downloadable!] (restricted)
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  7. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October. [Downloadable!] (restricted)
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  8. Pablo Emilio Guidotti & Jose De Gregorio, 1992. "Financial Development and Economic Growth," IMF Working Papers 92/101, International Monetary Fund.
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  9. Jayaratne, Jith & Strahan, Philip E, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 639-70, August. [Downloadable!] (restricted)
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  11. Sherrill Shaffer, 1994. "Market conduct and aggregate excess capacity in banking: a cross- country comparison," Working Papers 93-28/R, Federal Reserve Bank of Philadelphia.
  12. Zsolt Becsi & Ping Wang, 1997. "Financial development and growth," Economic Review, Federal Reserve Bank of Atlanta, issue Q 4, pages 46-62. [Downloadable!]
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  16. Bencivenga, Valerie R & Smith, Bruce D, 1991. "Financial Intermediation and Endogenous Growth," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 195-209, April. [Downloadable!] (restricted)
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  17. 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. [Downloadable!] (restricted)
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  18. Fama, Eugene F., 1980. "Banking in the theory of finance," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 39-57, January. [Downloadable!] (restricted)
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  20. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March. [Downloadable!] (restricted)
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  21. Williamson, Stephen D., 1986. "Costly monitoring, financial intermediation, and equilibrium credit rationing," Journal of Monetary Economics, Elsevier, vol. 18(2), pages 159-179, September. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, 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.)

  1. Samiran Chakraborty, 2002. "Aspects of Financial Reforms In the Presence of Product Market Imperfection," Working papers 105, Centre for Development Economics, Delhi School of Economics. [Downloadable!]
  2. Zsolt Becsi & Ping Wang & Mark A. Wynne, 1998. "Costly intermediation and the big push," Working Paper 98-16, Federal Reserve Bank of Atlanta. [Downloadable!]
  3. Baochun Peng, 2000. "How Well Does the Market Allocate Entrepreneurs?," CRIEFF Discussion Papers 0025, Centre for Research into Industry, Enterprise, Finance and the Firm. [Downloadable!]
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