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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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    Web page: http://www.federalreserve.gov/

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    8. Nouriel Roubini & Xavier Sala-i-Martin, 1991. "Financial Repression and Economic Growth," NBER Working Papers 3876, National Bureau of Economic Research, Inc.
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    19. Hubbard, R Glenn & Kashyap, Anil K, 1992. "Internal Net Worth and the Investment Process: An Application to U.S. Agriculture," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 506-34, June.
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    21. Takeo Hoshi & Anil K. Kashyap & David Scharfstein, 1990. "The role of banks in reducing financial distress in Japan," Finance and Economics Discussion Series 134, Board of Governors of the Federal Reserve System (U.S.).
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    23. Gilson, Stuart C. & John, Kose & Lang, Larry H. P., 1990. "Troubled debt restructurings*1: An empirical study of private reorganization of firms in default," Journal of Financial Economics, Elsevier, vol. 27(2), pages 315-353, October.
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    28. Neal, Craig R., 1990. "Macrofinancial indicators for 117 developing and industrial countries," Policy Research Working Paper Series 58, The World Bank.
    29. King, Robert G. & Levine, Ross, 1992. "Financial indicators and growth in a cross section of countries," Policy Research Working Paper Series 819, The World Bank.
    30. Mikkelson, Wayne H. & Partch, M. Megan, 1986. "Valuation effects of security offerings and the issuance process," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 31-60.
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