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Threshold Effect and Financial Intermediation in Economic Development

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  • Soedarmono, Wahyoe
  • Augier, Laurent

Abstract

This paper analyzes the importance of financial intermediation on economic growth. Using the Neoclassical growth framework, we raise a new issue where our model has multiple stationary states with threshold effect. We further confirm that financial intermediation is better than self-financing system in order to ensure the existence and uniqueness of long-run steady state equilibrium of capital stock, as well as to decrease threshold level. The presence of threshold effect is an important finding in studying the finance-growth nexus, since it prevents the economy to raise sufficient initial capital.

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File URL: http://mpra.ub.uni-muenchen.de/20405/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14905.

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Date of creation: 28 Apr 2009
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Handle: RePEc:pra:mprapa:14905

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Keywords: Threshold Effect; Financial Intermediation; Economic Growth; Developing Countries;

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Citations

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Cited by:
  1. Stolbov, Mikhail, 2012. "The finance-growth nexus revisited: From origins to a modern theoretical landscape," Economics Discussion Papers 2012-45, Kiel Institute for the World Economy.
  2. 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.
  3. Soedarmono, Wahyoe & Tarazi, Amine, 2013. "Bank opacity, intermediation cost and globalization: Evidence from a sample of publicly traded banks in Asia," Journal of Asian Economics, Elsevier, vol. 29(C), pages 91-100.

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