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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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    1. Bencivenga, V.R. & Smith, B.D., 1988. "Financial Intermediation And Endogenous Growth," RCER Working Papers 124, University of Rochester - Center for Economic Research (RCER).
    2. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
    3. 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.
    4. Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April.
    5. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    6. Neal, Craig R., 1990. "Macrofinancial indicators for 117 developing and industrial countries," Policy Research Working Paper Series 58, The World Bank.
    7. Khan, Aubhik, 2001. "Financial Development And Economic Growth," Macroeconomic Dynamics, Cambridge University Press, vol. 5(03), pages 413-433, June.
    8. R. Glenn Hubbard & Anil Kashyap, 1990. "Internal Net Worth and the Investment Process: An Application to U.S. Agriculture," NBER Working Papers 3339, National Bureau of Economic Research, Inc.
    9. Nouriel Roubini & Xavier Sala-i-Martin, 1991. "Financial Repression and Economic Growth," NBER Working Papers 3876, National Bureau of Economic Research, Inc.
    10. Davis, E Philip & Mayer, Colin, 1991. "Corporate Finance in the Euromarkets and the Economics of Intermediation," CEPR Discussion Papers 570, C.E.P.R. Discussion Papers.
    11. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1990. "Bank Monitoring and Investment: Evidence from the Changing Structure of Japanese Corporate Banking Relationships," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 105-126 National Bureau of Economic Research, Inc.
    12. James, Christopher, 1987. "Some evidence on the uniqueness of bank loans," Journal of Financial Economics, Elsevier, vol. 19(2), pages 217-235, December.
    13. De Gregorio, Jose & Guidotti, Pablo E., 1995. "Financial development and economic growth," World Development, Elsevier, vol. 23(3), pages 433-448, March.
    14. Bencivenga Valerie R. & Smith Bruce D. & Starr Ross M., 1995. "Transactions Costs, Technological Choice, and Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 67(1), pages 153-177, October.
    15. 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.).
    16. Lummer, Scott L. & McConnell, John J., 1989. "Further evidence on the bank lending process and the capital-market response to bank loan agreements," Journal of Financial Economics, Elsevier, vol. 25(1), pages 99-122, November.
    17. 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.
    18. Colin Mayer, 1990. "Financial Systems, Corporate Finance, and Economic Development," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 307-332 National Bureau of Economic Research, Inc.
    19. Hicks, J. R., 1969. "A Theory of Economic History," OUP Catalogue, Oxford University Press, number 9780198811633.
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    25. repec:ucp:bkecon:9780226301532 is not listed on IDEAS
    26. Fazzari, Steven M & Athey, Michael J, 1987. "Asymmetric Information, Financing Constraints, and Investment," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 481-87, August.
    27. Mayer, Colin, 1987. "New Issues in Corporate Finance," CEPR Discussion Papers 181, C.E.P.R. Discussion Papers.
    28. Gelb, Alan H., 1989. "Financial policies, growth, and efficiency," Policy Research Working Paper Series 202, The World Bank.
    29. Cho, Yoon Je, 1989. "Finance and Development: The Korean Approach," Oxford Review of Economic Policy, Oxford University Press, vol. 5(4), pages 88-102, Winter.
    30. Corbett, Jenny, 1987. "International Perspectives on Financing: Evidence from Japan," Oxford Review of Economic Policy, Oxford University Press, vol. 3(4), pages 30-55, Winter.
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