IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Finance matters

  • Pedro S. Amaral
  • Erwan Quintin

We present a model in which the importance of financial intermediation for development can be measured. We generate financial differences by varying the degree to which contracts can be enforced. Economies where enforcement is poor employ less capital and less efficient technologies. Yet, accounting for all the observed dispersion output requires a higher capital share or a lower elasticity of substitution between capital and labor than usually assumed. We find that the effects of changes in those technological parameters on output are markedly larger when financial frictions are present. Finance, that is, matters.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Federal Reserve Bank of Dallas in its series Center for Latin America Working Papers with number 0104.

in new window

Date of creation: 2005
Date of revision:
Handle: RePEc:fip:feddcl:0104
Contact details of provider: Web page:

More information through EDIRC

Order Information: Email:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  2. Restuccia, Diego & Urrutia, Carlos, 2001. "Relative prices and investment rates," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 93-121, February.
  3. Herrendorf, Berthold & Teixeira, Arilton, 2004. "Monopoly rights can reduce income big time," Research Discussion Papers 7/2004, Bank of Finland.
  4. Caselli, Francesco, 2005. "Accounting for Cross-Country Income Differences," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 9, pages 679-741 Elsevier.
  5. Andrew Atkeson & Patrick J. Kehoe, 2001. "The Transition to a New Economy After the Second Industrial Revolution," NBER Working Papers 8676, National Bureau of Economic Research, Inc.
  6. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 83-116.
  7. Herrendorf, Berthold & Teixeira, Arilton, 2003. "Monopoly Rights can Reduce Income Big Time," CEPR Discussion Papers 3854, C.E.P.R. Discussion Papers.
  8. Ellen R. McGrattan & Edward C. Prescott, 2001. "Is the Stock Market Overvalued?," NBER Working Papers 8077, National Bureau of Economic Research, Inc.
  9. Chang-Tai Hsieh & Peter J. Klenow, 2003. "Relative Prices and Relative Prosperity," NBER Working Papers 9701, National Bureau of Economic Research, Inc.
  10. Greenwood, J. & Jovanovic, B., 1988. "Financial Development, Growth, And The Distribution Of Income," RCER Working Papers 131, University of Rochester - Center for Economic Research (RCER).
  11. Andrei Shleifer & Daniel Wolfenson, 2000. "Investor Protection and Equity Markets," Harvard Institute of Economic Research Working Papers 1906, Harvard - Institute of Economic Research.
  12. Diego Restuccia & Richard Rogerson, 2008. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 707-720, October.
  13. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
  14. Prescott, Edward C, 1998. "Needed: A Theory of Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 525-51, August.
  15. Boyd, John H. & Prescott, Edward C., 1986. "Financial intermediary-coalitions," Journal of Economic Theory, Elsevier, vol. 38(2), pages 211-232, April.
  16. Ana Hidalgo & Andres Erosa, 2004. "On Capital Market Imperfections as an Origin of Low TFP and Economic Rents," 2004 Meeting Papers 16, Society for Economic Dynamics.
  17. Antras, Pol, 2004. "Is the U.S. Aggregate Production Function Cobb-Douglas? New Estimates of the Elasticity of Substitution," Scholarly Articles 3196325, Harvard University Department of Economics.
  18. Philippe Aghion & Peter Howitt & David Mayer-Foulkes, 2004. "The Effects of Financial Development on Convergence: Theory and Evidence," DEGIT Conference Papers c009_021, DEGIT, Dynamics, Economic Growth, and International Trade.
  19. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  20. Tybout, James, 1998. "Manufacuring firms in developing countries - how well do they do, and why?," Policy Research Working Paper Series 1965, The World Bank.
  21. Acemoglu, Daron & Zilibotti, Fabrizio, 2000. "Productivity Differences," CEPR Discussion Papers 2498, C.E.P.R. Discussion Papers.
  22. J. Bradford De Long & Lawrence H. Summers, 1990. "Equipment Investment and Economic Growth," NBER Working Papers 3515, National Bureau of Economic Research, Inc.
  23. Andres Erosa & Ana Hidalgo, 2005. "On Capital Market Imperfections as a Source of Low TFP and Economic Rents," Working Papers tecipa-200, University of Toronto, Department of Economics.
  24. Hyeok Jeong & Robert Townsend, 2007. "Sources of TFP growth: occupational choice and financial deepening," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(1), pages 179-221, July.
  25. Diego Restuccia, 2002. "Barriers to Capital Accumulation and Aggregate Total Factor Productivity," Working Papers diegor-02-01, University of Toronto, Department of Economics.
  26. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1997. "The poverty of nations: a quantitative exploration," Staff Report 204, Federal Reserve Bank of Minneapolis.
  27. Charles I. Jones, 2003. "Growth, capital shares, and a new perspective on production functions," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  28. Levine, Ross, 1992. "Financial intermediary services and growth," Journal of the Japanese and International Economies, Elsevier, vol. 6(4), pages 383-405, December.
  29. Atkenson, Andrew & Khan, Aubhik & Ohanian, Lee, 1996. "Are data on industry evolution and gross job turnover relevant for macroeconomics?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 44(1), pages 215-239, June.
  30. Harold L. Cole & Lee E. Ohanian & Alvaro Riascos & James A. Schmitz, 2004. "Latin America in the rearview mirror," Staff Report 351, Federal Reserve Bank of Minneapolis.
  31. Pessoa, Samuel de Abreu & Pessoa, Silvia Maria Matos & Rob, Rafael, 2003. "Elasticity of substitution between capital and labor: a panel data approach," Economics Working Papers (Ensaios Economicos da EPGE) 494, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  32. Duffy, John & Papageorgiou, Chris, 2000. "A Cross-Country Empirical Investigation of the Aggregate Production Function Specification," Journal of Economic Growth, Springer, vol. 5(1), pages 87-120, March.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:fip:feddcl:0104. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Chapman)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.