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Endogenous Financial Development and Industrial Takeoff

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Author Info
Alex William Trew ()

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Abstract

There is a large and growing literature on the relationship between financial development and economic growth. It suggests a positive causal link running from finance to growth. We consider, in broad terms, the existing historical evidence on this connection. We demonstrate that constraints on investment finance occur primarily in the presence of fixed costs. Investments in physical transport infrastructures are prime examples of projects in which financial constraints can retard industrial growth. Furthermore, an appreciation of spatial and dynamic elements is central: Infrastructure development was privately financed by spatially concentrated coalitions of modest investors. We contrast the institutional environment in Britain with that in continental Europe. We develop a theory of finance and growth that can account for the disaggregated and dynamic nature of the finance and development of infrastructure.

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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 0702.

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Date of creation: Jan 2007
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Handle: RePEc:san:cdmawp:0702

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Postal: School of Economics and Finance, University of St. Andrews, Fife KY16 9AL
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Related research
Keywords: finance and growth endogenous growth economic integration economic history.

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Find related papers by JEL classification:
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913

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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.:
  1. Alex William Trew, 2005. " Finance and Growth: A Critical Survey," CDMA Working Paper Series 0507, Centre for Dynamic Macroeconomic Analysis, revised Apr 2006. [Downloadable!]
    Other versions:
  2. Charles R. Hulten, 1996. "Infrastructure Capital and Economic Growth: How Well You Use It May Be More Important Than How Much You Have," NBER Working Papers 5847, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June. [Downloadable!] (restricted)
    Other versions:
  4. Stephen L. Parente & Edward C. Prescott, 2004. "A unified theory of the evolution of international income levels," Staff Report 333, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  5. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-92, July. [Downloadable!] (restricted)
  6. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1003-26, October. [Downloadable!] (restricted)
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  7. McDermott, John, 2002. " Development Dynamics: Economic Integration and the Demographic Transition," Journal of Economic Growth, Springer, vol. 7(4), pages 371-409, December. [Downloadable!] (restricted)
  8. Alberto Alesina & Enrico Spolaore & Romain Wacziarg, 2000. "Economic Integration and Political Disintegration," American Economic Review, American Economic Association, vol. 90(5), pages 1276-1296, December. [Downloadable!] (restricted)
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  9. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  10. César Calderón & Luis Servén, 2004. "The Effects of Infrastructure Development on Growth and Income Distribution," Working Papers Central Bank of Chile 270, Central Bank of Chile. [Downloadable!]
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  11. Bogart, Dan, 2007. "Neighbors, networks, and the development of transport systems: Explaining the diffusion of turnpike trusts in eighteenth-century England," Journal of Urban Economics, Elsevier, vol. 61(2), pages 238-262, March. [Downloadable!] (restricted)
  12. Richard Sylla & Jack Wilson & Robert Wright, 2006. "Integration of Trans-Atlantic Capital Markets, 1790-1845," Review of Finance, Springer, vol. 10(4), pages 613-644, December. [Downloadable!] (restricted)
  13. Acemoglu, Daron & Zilibotti, Fabrizio, 1997. "Was Prometheus Unbound by Chance? Risk, Diversification, and Growth," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 709-51, August.
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  14. Rivera-Batiz, Luis A & Romer, Paul M, 1991. "Economic Integration and Endogenous Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 531-55, May. [Downloadable!] (restricted)
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  15. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July. [Downloadable!] (restricted)
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(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. Alex William Trew, 2005. " Finance and Growth: A Critical Survey," CDMA Working Paper Series 0507, Centre for Dynamic Macroeconomic Analysis, revised Apr 2006. [Downloadable!]
    Other versions:
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