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Crony Capitalism and Financial System Stability

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  • Joseph H. Haslag
  • Rowena Pecchenino

Abstract

Prior to the Asian financial crisis, the cozy relationships between corporations, governments, and banks were seen as a potent force for economic growth and development. In this article we examine the institution of crony capitalism. Under conditions in which the Second Welfare Theorem does not hold, there is a role for government. Some governmental institutions do encourage more risky, high-payoff entrepreneurial activities. Our aim is to examine crony capitalism as a potential source of government activity that enhances economic productivity. In addition, we explore the conditions under which the government activity can instigate a financial crisis. (JEL G28, G21, E32) Copyright 2005, Oxford University Press.

Suggested Citation

  • Joseph H. Haslag & Rowena Pecchenino, 2005. "Crony Capitalism and Financial System Stability," Economic Inquiry, Western Economic Association International, vol. 43(1), pages 24-38, January.
  • Handle: RePEc:oup:ecinqu:v:43:y:2005:i:1:p:24-38
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    File URL: http://hdl.handle.net/10.1093/ei/cbi003
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    Cited by:

    1. Victor Vaugirard, 2005. "Crony Capitalism and Sovereign Default," Open Economies Review, Springer, vol. 16(1), pages 77-99, January.

    More about this item

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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