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Endogenous Financial Development and Industrial Takeoff

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  • Alex 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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Bibliographic Info

Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200702.

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Date of creation: 15 Jan 2007
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Handle: RePEc:san:cdmawp:0702

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Keywords: finance and growth; endogenous growth; economic integration; economic history.;

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  1. César Calderón & Luis Servén, 2004. "The Effects of Infrastructure Development on Growth and Income Distribution," Working Papers Central Bank of Chile, Central Bank of Chile 270, Central Bank of Chile.
  2. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934 Elsevier.
  3. Murphy, Kevin M. & Shleifer, Andrei & Vishny, Robert W., 1989. "Industrialization and the Big Push," Scholarly Articles 3606235, Harvard University Department of Economics.
  4. Alex Trew, 2006. "Finance and Growth: A Critical Survey," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 82(259), pages 481-490, December.
  5. Rivera-Batiz, Luis A & Romer, Paul M, 1991. "Economic Integration and Endogenous Growth," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(2), pages 531-55, May.
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  7. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
  8. Crafts, N. F. R., 1995. "Exogenous or Endogenous Growth? The Industrial Revolution Reconsidered," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 55(04), pages 745-772, December.
  9. Daron Acemoglu & Fabrizio Zilibotti, 1994. "Was Prometheus unbound by chance? Risk, diversification and growth," Economics Working Papers 98, Department of Economics and Business, Universitat Pompeu Fabra.
  10. Wacziarg, Romain & Spolaore, Enrico & Alesina, Alberto, 2000. "Economic Integration and Political Disintegration," Scholarly Articles 4553029, Harvard University Department of Economics.
  11. Sergio Rebelo, 1999. "Long Run Policy Analysis and Long Run Growth," Levine's Working Paper Archive 2114, David K. Levine.
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  18. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, American Finance Association, vol. 39(3), pages 575-92, July.
  19. McDermott, John, 2002. " Development Dynamics: Economic Integration and the Demographic Transition," Journal of Economic Growth, Springer, Springer, vol. 7(4), pages 371-409, December.
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Cited by:
  1. Agustín Filippo, 2010. "Imperfectly Substitutable Financial Instruments in an Economic Development Model," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, Central Bank of Argentina, Economic Research Department, vol. 1(57-58), pages 59-93, January -.
  2. Alex Trew, 2006. "Finance and Growth: A Critical Survey," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 82(259), pages 481-490, December.
  3. Faruk Ãœlgen, 2013. "Redesigning finance towards job-creating long-term development : some regulatory roots," Post-Print halshs-00957355, HAL.

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