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A Theory of Growth, Financial Development and Trade

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  • Keith Blackburn
  • Victor T. Y. Hung

Abstract

This paper presents an analysis of the joint determination of real and financial development. Privately informed designers obtain external finance for their research projects through incentive‐compatible loan contracts. Contracts are enforced through costly monitoring activity which lenders may either undertake themselves, or delegate to a financial intermediary. The analysis establishes a positive, two‐way causal relationship between growth and financial development. In addition, using a multi‐country version of the model, it is shown how both financial and trade liberalization can accelerate the development of intermediation; only trade liberalization has a direct positive effect on growth, however.

Suggested Citation

  • Keith Blackburn & Victor T. Y. Hung, 1998. "A Theory of Growth, Financial Development and Trade," Economica, London School of Economics and Political Science, vol. 65(257), pages 107-124, February.
    • Handle: RePEc:bla:econom:v:65:y:1998:i:257:p:107-124
    DOI: 10.1111/1468-0335.00116
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    Cited by:

    1. Agénor, Pierre-Richard & Bayraktar, Nihal, 2023. "Capital requirements and growth in an open economy," Journal of Economic Dynamics and Control, Elsevier, vol. 147(C).
    2. Boikos, Spyridon & Bournakis, Ioannis & Christopoulos, Dimitris & McAdam, Peter, 2023. "Financial reforms and innovation: A micro–macro perspective," Journal of International Money and Finance, Elsevier, vol. 132(C).
    3. Ioanna Konstantakopoulou, 2023. "Financial Intermediation, Economic Growth, and Business Cycles," JRFM, MDPI, vol. 16(12), pages 1-9, December.
    4. Jie Liu & Shujun Ye & Yujin Zhang & Lulu Zhang, 2023. "Research on InsurTech and the Technology Innovation Level of Insurance Enterprises," Sustainability, MDPI, vol. 15(11), pages 1-19, May.
    5. Doukouré Charles Fe & Jeffrey Kouton, 2023. "The Banking Sector, the Engine of Inclusive Growth in WAEMU Countries: Decoy or Glimmer?," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(1), pages 472-502, March.
    6. Olajide Oyadeyi, 2023. "Financial development, real sector, and economic growth in Nigeria," SN Business & Economics, Springer, vol. 3(8), pages 1-21, August.
    7. Ha, Le Thanh, 2023. "The role of financial development in enhancing trades in environmental goods: International insights from 119 countries," Journal of Commodity Markets, Elsevier, vol. 29(C).
    8. Imen Mohamed Sghaier, 2023. "Trade openness, financial development and economic growth in North African countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1729-1740, April.

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