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Specialization, Intermediation, and Growth

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  • Alexander Galetovic

Abstract

In market economies financial intermediaries develop during the early stages of industrialization. This paper argues that it occurs because as firms specialize the number of transactions involving credit increases. The main conclusions of the paper are : (a) when increased specialization is a necessary condition for growth, sustained growth may not start if financial intermediaries do not emerge. In this sense, intermediaries are a necessary condition for growth to start and persist; (b) when firms specialize intermediaries endogenously emerge, because they prevent the duplication of monitoring effort. Thus, it is specialization in the real sector which causes the emergence of intermediaries.

Suggested Citation

  • Alexander Galetovic, 1996. "Specialization, Intermediation, and Growth," Documentos de Trabajo 1, Centro de Economía Aplicada, Universidad de Chile.
    • Handle: RePEc:edj:ceauch:1
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