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The Impact of Financial Intermediaries on Resource Allocation and Economic Growth

  • Philip Lowe

    (Reserve Bank of Australia)

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    This paper examines the links between economic growth and the nature of a country’s financial system. It is argued that long-run growth has its roots in resource accumulation, and in particular in knowledge accumulation. The financial system plays an important role in influencing both the amount and type of resource accumulation which actually takes place. In particular, financial market regulation distorts the incentives of financial intermediaries which, in turn, distorts the type of resource accumulation that takes place. It is also argued that the size of the gains derived from the development of the financial sector rests heavily on the ability of intermediaries to effectively screen and monitor lending proposals. Finally, the paper explores some of the implications of Australia’s financial market liberalisation.

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    Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp9213.

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    Date of creation: Dec 1992
    Date of revision:
    Handle: RePEc:rba:rbardp:rdp9213
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    1. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    2. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    3. Adrian Blundell-Wignall & Frank Browne, 1991. "Macroeconomic Consequences of Financial Liberalisation: A Summary Report," OECD Economics Department Working Papers 98, OECD Publishing.
    4. Philip Lowe & Geoffrey Shuetrim, 1992. "The Evolution of Corporate Financial Structure: 1973–1990," RBA Research Discussion Papers rdp9216, Reserve Bank of Australia.
    5. Stiglitz, Joseph E, 1989. "Financial Markets and Development," Oxford Review of Economic Policy, Oxford University Press, vol. 5(4), pages 55-68, Winter.
    6. Greenwald, Bruce C. & Stiglitz, Joseph E., 1989. "Financial Market Imperfections and Productivity Growth," Working Paper Series 206, Research Institute of Industrial Economics.
    7. Jeremy Greenwood & Boyan Jovanovic, 1989. "Financial Development, Growth, and the Distribution of Income," NBER Working Papers 3189, National Bureau of Economic Research, Inc.
    8. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    9. Levine, Ross, 1991. " Stock Markets, Growth, and Tax Policy," Journal of Finance, American Finance Association, vol. 46(4), pages 1445-65, September.
    10. Ben Bernanke & Mark Gertler, 1990. "Financial Fragility and Economic Performance," The Quarterly Journal of Economics, Oxford University Press, vol. 105(1), pages 87-114.
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