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Intermediation Costs, Investor Protection, and Economic Development

Author

Listed:
  • Anne P. Villamil
  • António Antunes
  • Tiago V. de V. Cavalcanti

    (Faculdade de Economia Universidade Nova de Lisboa)

Abstract

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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Anne P. Villamil & António Antunes & Tiago V. de V. Cavalcanti, 2005. "Intermediation Costs, Investor Protection, and Economic Development," 2005 Meeting Papers 712, Society for Economic Dynamics.
    • Handle: RePEc:red:sed005:712
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    Cited by:

    1. Alexandre Rands, 2005. "The Impact of States Owned Banks on Interest Rates Spread," Working Papers 42, Datamétrica Consultoria Econômica, revised 2005.
    2. Barros, Alexandre Rands, 2008. "How to make bankers richer: The Brazilian financial market with public and private banks," The Quarterly Review of Economics and Finance, Elsevier, vol. 48(2), pages 217-236, May.
    3. Tiago V. de V. Cavalcanti & Anne P. Villamil, 2005. "On The Welfare And Distributional Implications Of Intermediation Costs," Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33rd Brazilian Economics Meeting] 087, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].

    More about this item

    Keywords

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    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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