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Banking, Credit Market Imperfection and Growth

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  • Nabi, Mahmoud Sami
  • Rajhi, Taoufik

Abstract

We develop a new model that links capital market imperfection to banking emergence and economic growth. It is shown that the banking system emerges endogenously after a first stage of slow economic growth. Interestingly, economic growth increases after the emergence of banking but remains under its potential level. This is due to a credit rationing brake which decreases progressively as the economy develops. Another finding is that a reduction of credit market imperfection reduces the credit rationing stage.

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File URL: http://mpra.ub.uni-muenchen.de/24495/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24495.

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Date of creation: 2005
Date of revision: 2010
Handle: RePEc:pra:mprapa:24495

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Related research

Keywords: endogenous growth; banking emergence; credit rationing; credit market imperfection;

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  1. Kiminori Matsuyama, 2004. "Financial Market Globalization, Symmetry-Breaking, and Endogenous Inequality of Nations," Econometrica, Econometric Society, vol. 72(3), pages 853-884, 05.
  2. Ross Levine, 1998. "The legal environment, banks, and long-run economic growth," Proceedings, Federal Reserve Bank of Cleveland, issue Aug, pages 596-620.
  3. Beck, T.H.L. & Levine, R. & Loayza, N., 2000. "Financial intermediation and growth: Causality and causes," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125519, Tilburg University.
  4. Jeremy Greenwood & Boyan Jovanovic, 1989. "Financial Development, Growth, and the Distribution of Income," NBER Working Papers 3189, National Bureau of Economic Research, Inc.
  5. Blackburn, Keith & Hung, Victor T Y, 1998. "A Theory of Growth, Financial Development and Trade," Economica, London School of Economics and Political Science, vol. 65(257), pages 107-24, February.
  6. Ahmed, Shaghil, 1998. "Comment on "The Legal Environment, Banks, and Long-Run Economic Growth."," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 614-20, August.
  7. Demetriades, Panicos O. & Hussein, Khaled A., 1996. "Does financial development cause economic growth? Time-series evidence from 16 countries," Journal of Development Economics, Elsevier, vol. 51(2), pages 387-411, December.
  8. M. Sami NABI & M. Osman SULIMAN, 2009. "Institutions, Banking Development, And Economic Growth," The Developing Economies, Institute of Developing Economies, vol. 47(4), pages 436-457.
  9. Jaffee, Dwight M & Russell, Thomas, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 651-66, November.
  10. Bencivenga, V.R. & Smith, B.D., 1988. "Some Consequences Of Credit Rationing In An Endogenous Growth Model," RCER Working Papers 159, University of Rochester - Center for Economic Research (RCER).
  11. Laeven, Luc & Majnoni, Giovanni, 2003. "Does judicial efficiency lower the cost of credit:," Policy Research Working Paper Series 3159, The World Bank.
  12. Shan, Jordan Z & Morris, Alan G & Sun, Fiona, 2001. "Financial Development and Economic Growth: An Egg-and-Chicken Problem?," Review of International Economics, Wiley Blackwell, vol. 9(3), pages 443-54, August.
  13. Tressel, Thierry, 2003. " Dual Financial Systems and Inequalities in Economic Development," Journal of Economic Growth, Springer, vol. 8(2), pages 223-57, June.
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