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Banking, contract enforcement and economic growth

  • Mahmoud Nabi

    ()

  • Taoufik Rajhi

    ()

We develop a new model that links credit contracts enforcement to banking emergence and economic growth. It is shown that the development process is composed of three stages. In the first stage, the economy develops slowly due to a primitive technology of capital accumulation. The second stage marks the emergence of banking and the substitution of the primitive technology by a more productive modern technology that enhances growth. Finally in the third stage, our model enables the realization of a dynamic capital accumulation scenario without credit rationing. Another finding is that a reduction in the enforcement cost accelerates the emergence of the banking system. Copyright Springer-Verlag 2013

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File URL: http://hdl.handle.net/10.1007/s12232-012-0161-1
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Article provided by Springer & Happiness Economics and Interpersonal Relations (HEIRS) in its journal International Review of Economics.

Volume (Year): 60 (2013)
Issue (Month): 1 (March)
Pages: 83-100

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Handle: RePEc:spr:inrvec:v:60:y:2013:i:1:p:83-100
DOI: 10.1007/s12232-012-0161-1
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  1. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
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