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Finance, growth, and public policy

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Author Info
Gertler, M.
Rose, A.

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Abstract

Development economists have long argued that modern financial markets are important to growth and that financial repression is a serious obstacle to progress in many developing countries. The authors consider the relationship between finance and growth and the appropriate role of government policy. Many economists have stressed how problems of asymmetric information and contract enforcement impede the functioning of financial markets in developing countries. In addition, they try to elaborate on these theories to make them relevant to policymakers. Information gaps and enforcement frictions introduce a premium in the cost of external funds. Factors such as the borrower's financial health, the efficiency of financial intermediation, and the ease of enforcing private financial contracts govern the size of this premium. How financial factors contribute to development may be understood along these lines. Financial contracts and institutions should be designed to minimize this premium.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 814.

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Date of creation: 31 Dec 1991
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Handle: RePEc:wbk:wbrwps:814

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Related research
Keywords: Banks&Banking Reform; Financial Intermediation; Environmental Economics&Policies; Economic Theory&Research; Health Economics&Finance;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Hinds, Manuel, 1988. "Economic effects of financial crises," Policy Research Working Paper Series 104, The World Bank. [Downloadable!]
  2. Gertler, Mark & Rogoff, Kenneth, 1990. "North-South lending and endogenous domestic capital market inefficiencies," Journal of Monetary Economics, Elsevier, vol. 26(2), pages 245-266, October. [Downloadable!] (restricted)
  3. Jeffrey M. Lacker, 1998. "Collateralized debt as the optimal contract," Working Paper 98-04, Federal Reserve Bank of Richmond. [Downloadable!]
    Other versions:
  4. Tybout, James, 1986. "A firm-level chronicle of financial crises in the Southern Cone," Journal of Development Economics, Elsevier, vol. 24(2), pages 371-400, December. [Downloadable!] (restricted)
  5. Calomiris, Charles W & Kahn, Charles M, 1991. "The Role of Demandable Debt in Structuring Optimal Banking Arrangements," American Economic Review, American Economic Association, vol. 81(3), pages 497-513, June. [Downloadable!] (restricted)
  6. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Blackwell Publishing, vol. 51(3), pages 393-414, July. [Downloadable!] (restricted)
  7. Neil Wallace, 1988. "Another attempt to explain an illiquid banking system: the Diamond and Dybvig model with sequential service taken seriously," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 3-16. [Downloadable!]
  8. Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  9. Timothy J Kehoe & David K Levine, 1993. "Debt Constrained Asset Markets," Levine's Working Paper Archive 1276, David K. Levine. [Downloadable!]
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  10. Bernanke, Ben & Gertler, Mark, 1990. "Financial Fragility and Economic Performance," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 87-114, February. [Downloadable!] (restricted)
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  11. Robert Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report 45, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  12. Mankiw, N Gregory, 1986. "The Allocation of Credit and Financial Collapse," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 455-70, August. [Downloadable!] (restricted)
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  13. Williamson, Stephen D, 1987. "Costly Monitoring, Loan Contracts, and Equilibrium Credit Rationing," The Quarterly Journal of Economics, MIT Press, vol. 102(1), pages 135-45, February. [Downloadable!] (restricted)
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  14. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June. [Downloadable!] (restricted)
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  15. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. [Downloadable!] (restricted)
  16. Stiglitz, Joseph E & Weiss, Andrew, 1983. "Incentive Effects of Terminations: Applications to the Credit and Labor Markets," American Economic Review, American Economic Association, vol. 73(5), pages 912-27, December. [Downloadable!] (restricted)
  17. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 33-60, February. [Downloadable!] (restricted)
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  18. Mark Gertler & R. Glenn Hubbard, 1991. "Corporate Financial Policy, Taxation, and Macroeconomic Risk," NBER Working Papers 3902, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  19. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Benjamin E. Hermalin & Andrew K. Rose, 1999. "Risks to Lenders and Borrowers in International Capital Markets," NBER Working Papers 6886, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Gow, H.R. & Swinnen, J., 2002. "Investment, and Contract Hold-Ups in Transition: Evidence from Hungary," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24853, European Association of Agricultural Economists. [Downloadable!]
  3. Sheng, Andrew & Yoon Je Cho, 1993. "Risk management and stable financial structures," Policy Research Working Paper Series 1109, The World Bank. [Downloadable!]
  4. Harris, John R. & Schiantarelli, Fabio & Siregar, Miranda G., 1992. "How financial liberalization in Indonesia affected firms'capital structure and investment decisions," Policy Research Working Paper Series 997, The World Bank. [Downloadable!]
  5. Caprio, Gerard, 1992. "Policy uncertainty, information asymmetries, and financial intermediation," Policy Research Working Paper Series 853, The World Bank. [Downloadable!]
  6. Alexander Galetovic, 1994. "Finance and growth: a synthesis and interpretation of the evidence," International Finance Discussion Papers 477, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  7. King, Robert G. & Levine, Ross, 1992. "Financial indicators and growth in a cross section of countries," Policy Research Working Paper Series 819, The World Bank. [Downloadable!]
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