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Finance and growth: a synthesis and interpretation of the evidence

  • Alexander Galetovic
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    Evidence is reviewed suggesting that: (a) in market economies financial systems develop and attain maturity during the early stages of industrialization; (b) frictions caused by asymmetric information and the incompleteness of contracts are important in credit markets, and intermediaries play an important role in overcoming them; (c) for a large cross-section of countries financial indicators correlate positively with growth. It is argued that financial intermediaries matter for growth because they moderate the negative effects of incentive frictions, thereby reducing the costs of financing the accumulation of intangible assets like commercial and technical knowledge.

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    File URL: http://www.federalreserve.gov/pubs/ifdp/1994/477/default.htm
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    File URL: http://www.federalreserve.gov/pubs/ifdp/1994/477/ifdp477.pdf
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    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 477.

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    Date of creation: 1994
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    Handle: RePEc:fip:fedgif:477
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    10. repec:ucp:bkecon:9780226301532 is not listed on IDEAS
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    27. Fama, Eugene F., 1980. "Banking in the theory of finance," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 39-57, January.
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