Intermediation costs, investor protection and economic development
This paper studies the effect of financial repression and contract enforcement on entrepreneurship and economic development. We construct and solve a general equilibrium model with heterogeneous agents, occupational choice and two financial frictions: intermediation costs and financial contract enforcement. Occupational choice and firm size are determined endogenously, and depend on agent type (wealth and ability) and credit market frictions. The model shows that differences across countries in intermediation costs and enforcement generate differences in occupational choice, firm size, credit, output and inequality. Counterfactual experiments are performed for Latin American, European, transition and high growth Asian countries. We use empirical estimates of each country's financial frictions, and United States values for all other parameters. The results allow us to isolate the quantitative effect of these financial frictions in explaining the performance gap between each country and the United States. The results depend critically on whether a general equilibrium factor price effect is operative.
|Date of creation:||2005|
|Date of revision:|
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- Demirguc-Kunt, Asli & Laeven, Luc & Levine, Ross, 2004.
"Regulations, Market Structure, Institutions, and the Cost of Financial Intermediation,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 36(3), pages 593-622, June.
- Asli Demirgüç-Kunt & Luc Laeven & Ross Levine, 2004. "Regulations, market structure, institutions, and the cost of financial intermediation," Proceedings, Federal Reserve Bank of Cleveland, pages 593-626.
- Asli Demirguc-Kunt & Luc Laeven & Ross Levine, 2003. "Regulations, Market Structure, Institutions, and the Cost of Financial Intermediation," NBER Working Papers 9890, National Bureau of Economic Research, Inc.
- Demirguc, Asli & Huizinga, Harry, 1999.
"Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence,"
World Bank Economic Review,
World Bank Group, vol. 13(2), pages 379-408, May.
- Demirguc-Kunt, Asli & Huizinga, Harry, 1998. "Determinants of commercial bank interest margins and profitability : some international evidence," Policy Research Working Paper Series 1900, The World Bank.
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