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A Theory of Growth, Financial Development and Trade

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  • Blackburn, Keith
  • Hung, Victor T Y

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 multicountry 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. Copyright 1998 by The London School of Economics and Political Science

Suggested Citation

  • Blackburn, Keith & Hung, Victor T Y, 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:107-24
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    References listed on IDEAS

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    1. Simon Gachter & Ernst Fehr, 2000. "Cooperation and Punishment in Public Goods Experiments," American Economic Review, American Economic Association, vol. 90(4), pages 980-994, September.
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    5. repec:cdl:ucsbec:16-01 is not listed on IDEAS
    6. Franciosi, Robert, et al, 1995. "Fairness: Effect on Temporary and Equilibrium Prices in Posted-Offer Markets," Economic Journal, Royal Economic Society, vol. 105(431), pages 938-950, July.
    7. Sen, Sankar & Gurhan-Canli, Zeynep & Morwitz, Vicki, 2001. " Withholding Consumption: A Social Dilemma Perspective on Consumer Boycotts," Journal of Consumer Research, Oxford University Press, vol. 28(3), pages 399-417, December.
    8. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-741, September.
    9. Bradley J. Ruffle, 2000. "Some factors affecting demand withholding in posted-offer markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 16(3), pages 529-544.
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