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Endogenous Financial Development and Industrial Takeoff

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  • 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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Bibliographic Info

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
Date of revision:
Handle: RePEc:san:cdmawp:0702

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

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References

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  1. Alex William Trew, 2005. " Finance and Growth: A Critical Survey," CDMA Working Paper Series 0507, Centre for Dynamic Macroeconomic Analysis, revised Apr 2006.
  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.
  3. 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.
  4. Luis A. Rivera-Batiz & Paul M. Romer, 1990. "Economic Integration and Endogenous Growth," NBER Working Papers 3528, National Bureau of Economic Research, Inc.
  5. McDermott, John, 2002. " Development Dynamics: Economic Integration and the Demographic Transition," Journal of Economic Growth, Springer, vol. 7(4), pages 371-409, December.
  6. 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.
  7. Enrico Spolaore & Alberto Alesina & Romain Wacziarg, 2000. "Economic Integration and Political Disintegration," American Economic Review, American Economic Association, vol. 90(5), pages 1276-1296, December.
  8. Murphy, Kevin M. & Shleifer, Andrei & Vishny, Robert W., 1989. "Industrialization and the Big Push," Scholarly Articles 3606235, Harvard University Department of Economics.
  9. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  10. Sergio T. Rebelo, 1992. "Long Run Policy Analysis and Long Run Growth," NBER Working Papers 3325, National Bureau of Economic Research, Inc.
  11. repec:kap:eurfin:v:10:y:2006:i:4:p:613-644 is not listed on IDEAS
  12. Calderon, Cesar & Serven, Luis, 2004. "The effects of infrastructure development on growth and income distribution," Policy Research Working Paper Series 3400, The World Bank.
  13. Richard Sylla & Jack Wilson & Robert Wright, 2006. "Integration of Trans-Atlantic Capital Markets, 1790-1845," Review of Finance, European Finance Association, vol. 10(4), pages 613-644, December.
  14. Crafts, N. F. R., 1995. "Exogenous or Endogenous Growth? The Industrial Revolution Reconsidered," The Journal of Economic History, Cambridge University Press, vol. 55(04), pages 745-772, December.
  15. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-92, July.
  16. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
  17. 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.
  18. Bogart, Dan, 2005. "Turnpike trusts and the transportation revolution in 18th century England," Explorations in Economic History, Elsevier, vol. 42(4), pages 479-508, October.
  19. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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Cited by:
  1. Alex William Trew, 2005. " Finance and Growth: A Critical Survey," CDMA Working Paper Series 0507, Centre for Dynamic Macroeconomic Analysis, revised Apr 2006.
  2. Agustín Filippo, 2010. "Imperfectly Substitutable Financial Instruments in an Economic Development Model," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(57-58), pages 59-93, January -.

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