Financial Development, Financing Choice and Economic Growth
Abstract
In an overlapping generations economy households (lenders) fund risky investment projects of firms (borrowers) by drawing up loan contracts on the basis of asymmetric information. An optimal contract entails either the issue of only debt or the issue of both debt and equity according to whether a household faces a single or a double enforcement problem as a result of its own decision about whether or not to undertake costly information acquisition. The equilibrium choice of contract depends on the state of the economy which, in turn, depends on the contracting regime. Based on this analysis, the paper provides a theory of the joint determination of real and financial development with the ability to explain both the endogenous emergence of stock markets and the complementarity between debt finance and equity finance.Download Info
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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 96.Length:
Date of creation: 02 Apr 2003
Date of revision:
Publication status: Published in Review of Development Economics, 2005, vol. 9, pages 135-149
Handle: RePEc:sef:csefwp:96
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Keywords: asymmetry of information; economic growth; financial markets; stock markets development;Other versions of this item:
- Keith Blackburn & Niloy Bose & Salvatore Capasso, 2005. "Financial Development, Financing Choice and Economic Growth," Review of Development Economics, Wiley Blackwell, vol. 9(2), pages 135-149, 05.
- K Blackburn & N Bose & S Capasso, 2001. "Financial Development, Financing Choice and Economic Growth," Centre for Growth and Business Cycle Research Discussion Paper Series 07, Economics, The Univeristy of Manchester.
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-04-13 (All new papers)
- NEP-CFN-2003-04-13 (Corporate Finance)
- NEP-DEV-2003-04-13 (Development)
- NEP-FMK-2003-04-13 (Financial Markets)
- NEP-LAM-2003-04-13 (Central & South America)
- NEP-MAC-2003-04-13 (Macroeconomics)
- NEP-MFD-2003-04-13 (Microfinance)
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Alex William Trew, 2005.
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