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Government, Financial Markets, and Economic Development

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  • Joseph E. Stiglitz

Abstract

Ideological debates on the role of government in development have focused on two contrasting prescriptions: one calling for large scale government interventions to solve problems of massive market failures, the other for the unfettering of markets, with the dynamic forces of capitalism naturally leading to growth and prosperity. This paper is part of an exploration of a middle road, focusing in particular on the role of government in financial markets. After explaining the importance of, and the limitations on, capital markets, particularly in allocating scarce investment resources, the results are used as a basis of a critique of the two 'extreme' approaches. Recognizing the limitations of government intervention as well as of free markets, the 'new view' of capital markets provides new insights into s variety of policy issues, which are addressed in the final section of the paper.

Suggested Citation

  • Joseph E. Stiglitz, 1991. "Government, Financial Markets, and Economic Development," NBER Working Papers 3669, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3669
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    1. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
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    5. Stiglitz, Joseph E & Weiss, Andrew, 1983. "Incentive Effects of Terminations: Applications to the Credit and Labor Markets," American Economic Review, American Economic Association, vol. 73(5), pages 912-927, December.
    6. Joseph E. Stiglitz, 1972. "Some Aspects of the Pure Theory of Corporate Finance: Bankruptcies and Take-Overs," Bell Journal of Economics, The RAND Corporation, vol. 3(2), pages 458-482, Autumn.
    7. Grossman, Sanford J & Stiglitz, Joseph E, 1976. "Information and Competitive Price Systems," American Economic Review, American Economic Association, vol. 66(2), pages 246-253, May.
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    9. Edwards, Sebastian & van Wijnbergen, Sweder, 1987. "Tariffs, The Real Exchange Rate and the Terms of Trade: On Two Popular Propositions in International Economics," Oxford Economic Papers, Oxford University Press, vol. 39(3), pages 458-464, September.
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    Cited by:

    1. Dethier, Jean-Jacques & John, Christoph, 1998. "Taxing capital income in Hungary and the European Union," Policy Research Working Paper Series 1903, The World Bank.
    2. Ghani, Ejaz, 1992. "How financial markets affect long run growth : a cross country study," Policy Research Working Paper Series 843, The World Bank.
    3. Buch, Claudia M., 1995. "The emerging financial systems of the Eastern European economics: A progress report," Kiel Working Papers 716, Kiel Institute for the World Economy (IfW).
    4. C. Pietrobelli, 1994. "Trade liberalisation and industrial response: the case of Chile (1974-1987)," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 47(191), pages 431-468.
    5. B. Scholtens, 1997. "Bank- and market-oriented financial systems: fact or fiction?," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 50(202), pages 301-323.
    6. Jeffrey A. Frankel., 1993. "Foreign Exchange Policy, Monetary Policy and Capital Market Liberalization in Korea," Center for International and Development Economics Research (CIDER) Working Papers C93-008, University of California at Berkeley.
    7. Joseph Bisignano, 1999. "Precarious credit equilibria: reflections on the Asian financial crisis," BIS Working Papers 64, Bank for International Settlements.
    8. Krug, B., 2006. "Enterprise Ground Zero in China," ERIM Report Series Research in Management ERS-2006-024-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    9. Dailami, Mansoor & Kim, E. Han, 1991. "The effects of debt subsidies on corporate investment behavior," Policy Research Working Paper Series 727, The World Bank.
    10. Lee, Jaewoo, 1996. "Financial development by learning," Journal of Development Economics, Elsevier, vol. 50(1), pages 147-164, June.
    11. Gupta, Kanhaya L. & Lensink, Robert, 1996. "Allocative efficiency and financial deregulation," International Review of Economics & Finance, Elsevier, vol. 5(1), pages 35-49.
    12. Buch, Claudia M., 1993. "An institutional approach to banking reform in Eastern Europe," Kiel Working Papers 560, Kiel Institute for the World Economy (IfW).
    13. Stern, Richard E., 1997. "Economic Transition Phase II: Private Sector Development," East European Series 51, Institute for Advanced Studies.

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