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The role of capital market efficiency in long-term growth: A quantitative exploration

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  • Lu, Shu-Shiuan

Abstract

A computable neoclassical model with financial intermediation is used first to explain the falling Euler equation tax wedge of S. Korea and Taiwan between 1966 and 2006 and then to explore the hypothesis that more efficient financial intermediation enhances growth. The analysis reveals that improved efficiency reduces the tax wedge of 1966–1980 by more than 58%. Moreover an improvement in financial efficiency generally results in a higher steady state output by raising the percentage of household savings intermediated and not by raising saving rates. Accordingly, financial efficiency improves welfare and positively contributes to long-term growth.

Suggested Citation

  • Lu, Shu-Shiuan, 2013. "The role of capital market efficiency in long-term growth: A quantitative exploration," Journal of Macroeconomics, Elsevier, vol. 36(C), pages 161-174.
  • Handle: RePEc:eee:jmacro:v:36:y:2013:i:c:p:161-174
    DOI: 10.1016/j.jmacro.2012.12.002
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    References listed on IDEAS

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    Cited by:

    1. Jeremy Greenwood & Juan Sanchez & Cheng Wang, 2013. "Quantifying the Impact of Financial Development on Economic Development," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 194-215, January.
    2. Grechyna, Daryna, 2017. "Firm Size, Bank Size, and Financial Development," MPRA Paper 83196, University Library of Munich, Germany.

    More about this item

    Keywords

    Neoclassical; Growth; Efficiency of financial intermediation; Euler equation tax wedge;

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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