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Threshold Effect and Financial Intermediation in Economic Development

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  • Laurent Augier

    (IUAP - Institut Universitaire Asie Pacifique - Université de La Rochelle)

  • Wahyoe Soedarmono

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - Université de Limoges : EA1088 - Institut Sciences de l'Homme et de la Société)

Abstract

This paper reformulates the finance-growth nexus in the case of developing countries. Using the Neoclassical growth framework, our contribution is threefold. First, we show that entrepreneurship is a growth-enhancing factor in both financial intermediary equilibrium and financial market equilibrium. Second, we show that agent's saving is one of the determinants of the optimal proportion of long-term investment and hence, we characterize the role of bank as financial intermediary. Third, our model is characterized by the existence of multiple steady states equilibrium with threshold effect that impedes the economy to reach a long-run higher steady state equilibrium. Furthermore, we show that financial intermediary is better than financial market, in order to reduce threshold effect and to ensure the long-run steady state equilibrium of capital stock.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number hal-00785204.

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Date of creation: 2011
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Publication status: Published, Economics Bulletin, 2011, 31, 1, 342-357
Handle: RePEc:hal:journl:hal-00785204

Note: View the original document on HAL open archive server: http://hal-unilim.archives-ouvertes.fr/hal-00785204
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Keywords: Threshold Effect; Financial Intermediary; Economic Growth; Developing Countries;

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Citations

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Cited by:
  1. Stolbov, Mikhail, 2013. "The finance-growth nexus revisited: From origins to a modern theoretical landscape," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 7(2), pages 1-22.
  2. Wahyoe Soedarmono & Amine Tarazi, 2013. "Bank Opacity, Intermediation Cost and Globalization: Evidence from a Sample of Publicly Traded Banks in Asia," Working Papers hal-00916564, HAL.
  3. Jean-pierre Allegret & Sana Azzabi, 2013. "Financial development, threshold effects and convergence in developing and emerging countries," Economics Bulletin, AccessEcon, vol. 33(3), pages 1899-1921.

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