Endogenous Growth and Intermediation in an 'Archipelago' Economy
A general equilibrium model based on the parable of an economy of many islands shows that market imperfections in the intermediation activity affect economic growth and possibly prevent take-off into sustained growth. The inhabitants of different islands accumulate heterogeneous assets and transportation-type intermediation allows for better allocation of the productive resources. The development process is accompanied by a reduction in intermediation costs, which induces firms to adopt more efficient techniques and sustains economic growth. A laissez-faire economy suffers from two distortions: the existence of market imperfections and a 'thick market' externality. Copyright 1994 by Royal Economic Society.
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Volume (Year): 104 (1994)
Issue (Month): 423 (March)
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