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Endogenous Financial Development and Industrial Takeoff

  • Alex Trew

    ()

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.

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File URL: http://www.st-andrews.ac.uk/economics/CDMA/papers/wp0702.pdf
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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200702.

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Date of creation: 15 Jan 2007
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Handle: RePEc:san:cdmawp:0702
Contact details of provider: Postal: School of Economics and Finance, University of St. Andrews, Fife KY16 9AL
Phone: 01334 462420
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Web page: http://www.st-andrews.ac.uk/cdmaEmail:


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