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Financial intermediation, variability and the development process

  • Carranza, Luis
  • Galdon-Sanchez, Jose E.

In this paper we build a model of financial intermediation that explains the GDP variability pattern of an economy during the development process. We find evidence that per capita output is more volatile in middle-income economies than in both low and high-income economies. We show that, if the model economy is in the early or in the mature stages of development, there is a unique equilibrium. However, in the middle stages of development, multi-ple equilibria arise. Moreover, we find that in economies with imperfect credit markets, per capita output volatility tends to be higher than in economies with perfect or non-existent credit markets.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 73 (2004)
Issue (Month): 1 (February)
Pages: 27-54

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Handle: RePEc:eee:deveco:v:73:y:2004:i:1:p:27-54
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

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