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Threshold Effect and Financial Intermediation in Economic Development

  • Soedarmono, Wahyoe
  • Augier, Laurent

This paper analyzes the importance of financial intermediation on economic growth. Using the Neoclassical growth framework, we raise a new issue where our model has multiple stationary states with threshold effect. We further confirm that financial intermediation is better than self-financing system in order to ensure the existence and uniqueness of long-run steady state equilibrium of capital stock, as well as to decrease threshold level. The presence of threshold effect is an important finding in studying the finance-growth nexus, since it prevents the economy to raise sufficient initial capital.

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File URL: http://mpra.ub.uni-muenchen.de/20405/1/MPRA_paper_20405.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14905.

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Date of creation: 28 Apr 2009
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Handle: RePEc:pra:mprapa:14905
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