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Efficiency, Depth and Growth: Quantitative Implications of Finance and Growth Theory

  • Alex Trew

    ()

We develop a parsimonious finance and endogenous growth model with microeconomic frictions in entrepreneurship and a role for credit constraints. We demonstrate that though an efficiency-growth relation will always exist, the efficiency-depth-growth relation may not. This has implications for the connection between the theory and empirics of finance and growth. We go on to ask whether the model can account for some historical trends in growth, financial depth and financial efficiency for the UK over the period 1850--1913. The best model of finance and growth is one that departs from the standard depth-growth link.

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File URL: http://www.st-andrews.ac.uk/economics/CDMA/papers/wp0712.pdf
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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200712.

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Date of creation: 15 Jul 2007
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Handle: RePEc:san:cdmawp:0712
Contact details of provider: Postal: School of Economics and Finance, University of St. Andrews, Fife KY16 9AL
Phone: 01334 462420
Fax: 01334 462444
Web page: http://www.st-andrews.ac.uk/cdma
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