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Efficiency, Depth and Growth: Quantitative Implications of Finance and Growth Theory

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Alex William Trew ()

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Abstract

We develop a parsimonious finance and endogenous growth model with microeconomic frictions in entrepreneurship and a role for credit constraints. We demonstrate that though an efficiency-growth relation will always exist, the efficiency-depth-growth relation may not. This has implications for the connection between the theory and empirics of finance and growth. We go on to ask whether the model can account for some historical trends in growth, financial depth and financial efficiency for the UK over the period 1850--1913. The best model of finance and growth is one that departs from the standard depth-growth link.

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Publisher Info
Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 0712.

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Date of creation: Jul 2007
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Handle: RePEc:san:cdmawp:0712

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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 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
N13 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations - - - Europe: Pre-1913
N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913

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References listed on IDEAS
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    Other versions:
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    Other versions:
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  21. Tsiddon, Daniel, 1992. "A Moral Hazard Trap to Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 299-321, May. [Downloadable!] (restricted)
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