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Finance, growth, and public policy

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  • Gertler, M.*Rose,Thomas A.

Abstract

Development economists have long argued that modern financial markets are important to growth and that financial repression is a serious obstacle to progress in many developing countries. The authors consider the relationship between finance and growth and the appropriate role of government policy. Many economists have stressed how problems of asymmetric information and contract enforcement impede the functioning of financial markets in developing countries. In addition, they try to elaborate on these theories to make them relevant to policymakers. Information gaps and enforcement frictions introduce a premium in the cost of external funds. Factors such as the borrower's financial health, the efficiency of financial intermediation, and the ease of enforcing private financial contracts govern the size of this premium. How financial factors contribute to development may be understood along these lines. Financial contracts and institutions should be designed to minimize this premium.

Suggested Citation

  • Gertler, M.*Rose,Thomas A., 1991. "Finance, growth, and public policy," Policy Research Working Paper Series 814, The World Bank.
  • Handle: RePEc:wbk:wbrwps:814
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    References listed on IDEAS

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    Cited by:

    1. Sheng, Andrew & Yoon Je Cho, 1993. "Risk management and stable financial structures," Policy Research Working Paper Series 1109, The World Bank.
    2. A. Galetovic, 1996. "Finance and growth: a synthesis and interpretation of the evidence," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 49(196), pages 59-82.
    3. Chokaev, Bekhan, 2017. "Islamic Finance: Possibilities for Russian Economy," Working Papers 031719, Russian Presidential Academy of National Economy and Public Administration.
    4. A. Galetovic, 1996. "Finance and growth: a synthesis and interpretation of the evidence," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 49(196), pages 59-82.
    5. Ahmed, S. M. & Ansari, M. I., 1998. "Financial sector development and economic growth: The South-Asian experience," Journal of Asian Economics, Elsevier, vol. 9(3), pages 503-517.
    6. Caprio, Gerard, 1992. "Policy uncertainty, information asymmetries, and financial intermediation," Policy Research Working Paper Series 853, The World Bank.
    7. Alexander Galetovic, 1994. "Finance and growth: a synthesis and interpretation of the evidence," International Finance Discussion Papers 477, Board of Governors of the Federal Reserve System (U.S.).
    8. Nissanke, Machiko, 2002. "Donors' Support for Microcredit as Social Enterprise: A Critial Reappraisal," WIDER Working Paper Series 127, World Institute for Development Economic Research (UNU-WIDER).
    9. Benjamin Hermalin & Andrew K. Rose & Peter M. Garber & Andrew Crockett & David W. Mullins, Jr, 1999. "Risks to Lenders and Borrowers in International Capital Markets," NBER Chapters,in: International Capital Flows, pages 363-420 National Bureau of Economic Research, Inc.
    10. Gow, Hamish R. & Swinnen, Johan F.M., 2002. "Investment, and Contract Hold-Ups in Transition: Evidence from Hungary," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24853, European Association of Agricultural Economists.
    11. Harris, John R. & Schiantarelli, Fabio & Siregar, Miranda G., 1992. "How financial liberalization in Indonesia affected firms'capital structure and investment decisions," Policy Research Working Paper Series 997, The World Bank.
    12. De Gregorio, Jose, 1996. "Borrowing constraints, human capital accumulation, and growth," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 49-71, February.
    13. King, Robert G. & Levine, Ross, 1992. "Financial indicators and growth in a cross section of countries," Policy Research Working Paper Series 819, The World Bank.

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