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

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  1. Jeremy Greenwood & Boyan Jovanovic, 1989. "Financial Development, Growth, and the Distribution of Income," NBER Working Papers 3189, National Bureau of Economic Research, Inc.
  2. Levine, Ross, 1998. "The Legal Environment, Banks, and Long-Run Economic Growth," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 30(3), pages 596-613, August.
  3. Demetriades, Panicos O. & Hussein, Khaled A., 1996. "Does financial development cause economic growth? Time-series evidence from 16 countries," Journal of Development Economics, Elsevier, Elsevier, vol. 51(2), pages 387-411, December.
  4. Laeven, Luc & Majnoni, Giovanni, 2005. "Does judicial efficiency lower the cost of credit?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 29(7), pages 1791-1812, July.
  5. Kiminori Matsuyama, 2004. "Financial Market Globalization, Symmetry-Breaking, and Endogenous Inequality of Nations," Econometrica, Econometric Society, Econometric Society, vol. 72(3), pages 853-884, 05.
  6. Bencivenga, Valerie R. & Smith, Bruce D., 1993. "Some consequences of credit rationing in an endogenous growth model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 17(1-2), pages 97-122.
  7. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, Central Bank of Chile, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (S (ed.), Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084 Central Bank of Chile.
  8. Blackburn, Keith & Hung, Victor T Y, 1998. "A Theory of Growth, Financial Development and Trade," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 65(257), pages 107-24, February.
  9. Tressel, Thierry, 2003. " Dual Financial Systems and Inequalities in Economic Development," Journal of Economic Growth, Springer, Springer, vol. 8(2), pages 223-57, June.
  10. Jaffee, Dwight M & Russell, Thomas, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 90(4), pages 651-66, November.
  11. Ahmed, Shaghil, 1998. "Comment on "The Legal Environment, Banks, and Long-Run Economic Growth."," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 30(3), pages 614-20, August.
  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, Wiley Blackwell, vol. 9(3), pages 443-54, August.
  13. M. Sami NABI & M. Osman SULIMAN, 2009. "Institutions, Banking Development, And Economic Growth," The Developing Economies, Institute of Developing Economies, Institute of Developing Economies, vol. 47(4), pages 436-457.
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