The Effect of Financial Repression & Enforcement on Entrepreneurship and Economic Development
Abstract
This paper studies the effect of financial repression and contract enforcement on entrepreneurship and economic development. We construct and solve a general equilibrium model with heterogeneous agents, occupational choice and two Financial frictions: intermediation costs and financial contract enforcement. Occupational choice and firm size are determined endogenously, and depend on agent type (wealth and ability) and the credit market frictions. The model shows that differences across countries in intermediation costs and enforcement generate differences in occupational choice, firm size, credit, output and inequality. Counterfactual experiments are performed for Latin American, European, transition and high growth Asian countries. We use empirical estimates of each country's financial frictions, and United States values for all other parameters. The results allow us to isolate the quantitative effect of these financial frictions in explaining the performance gap between each country and the United States. The results depend critically on whether a general equilibrium factor price effect is operative, which in turn depends on whether financial markets are open or closed. This yields a positive policy prescription: If the goal is to maximize steady-state efficiency, financial reforms should be accompanied by measures to increase financial capital mobility.Download Info
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Paper provided by National University of Singapore, Department of Economics, SCAPE in its series SCAPE Policy Research Working Paper Series with number 0610.Length: 33 pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:sca:scaewp:0610
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Web page: http://www.fas.nus.edu.sg/ecs/scape/index.html
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Related research
Keywords: Financial frictions; Financial reform; Occupational choice; Development;Other versions of this item:
- Antonio Antunes & Tiago Cavalcanti & Anne Villamil, 2006. "The Effect of Financial Repression & Enforcement on Entrepreneurship and Economic Development," Development Economics Working Papers 21816, East Asian Bureau of Economic Research.
- E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-13 (All new papers)
- NEP-DEV-2007-01-13 (Development)
- NEP-ENT-2007-01-13 (Entrepreneurship)
- NEP-REG-2007-01-13 (Regulation)
- NEP-SEA-2007-01-13 (South East Asia)
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
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