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Endogenous Financial Development and Industrial Takeoff

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  • Alex Trew

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Abstract

There is a large and growing literature on the relationship between financial development and economic growth. It suggests a positive causal link running from finance to growth. We consider, in broad terms, the existing historical evidence on this connection. We demonstrate that constraints on investment finance occur primarily in the presence of fixed costs. Investments in physical transport infrastructures are prime examples of projects in which financial constraints can retard industrial growth. Furthermore, an appreciation of spatial and dynamic elements is central: Infrastructure development was privately financed by spatially concentrated coalitions of modest investors. We contrast the institutional environment in Britain with that in continental Europe. We develop a theory of finance and growth that can account for the disaggregated and dynamic nature of the finance and development of infrastructure.

Suggested Citation

  • Alex Trew, 2007. "Endogenous Financial Development and Industrial Takeoff," CDMA Working Paper Series 200702, Centre for Dynamic Macroeconomic Analysis.
  • Handle: RePEc:san:cdmawp:0702
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    File URL: http://www.st-andrews.ac.uk/~wwwecon/CDMA/papers/wp0702.pdf
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    References listed on IDEAS

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    1. Alex Trew, 2006. "Finance and Growth: A Critical Survey," The Economic Record, The Economic Society of Australia, vol. 82(259), pages 481-490, December.
    2. Charles R. Hulten, 1996. "Infrastructure Capital and Economic Growth: How Well You Use It May Be More Important Than How Much You Have," NBER Working Papers 5847, National Bureau of Economic Research, Inc.
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    7. César Calderón & Luis Servén, 2004. "The Effects of Infrastructure Development on Growth and Income Distribution," Working Papers Central Bank of Chile 270, Central Bank of Chile.
    8. Parente, Stephen L. & Prescott, Edward C., 2005. "A Unified Theory of the Evolution of International Income Levels," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 21, pages 1371-1416 Elsevier.
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    Cited by:

    1. Alex Trew, 2006. "Finance and Growth: A Critical Survey," The Economic Record, The Economic Society of Australia, vol. 82(259), pages 481-490, December.
    2. Agustín Filippo, 2010. "Imperfectly Substitutable Financial Instruments in an Economic Development Model," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(57-58), pages 59-93, January -.
    3. Faruk Ülgen, 2013. "Redesigning finance towards job-creating long-term development : some regulatory roots," Post-Print halshs-00957355, HAL.

    More about this item

    Keywords

    finance and growth; endogenous growth; economic integration; economic history.;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913

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