industry growth and capital allocation does having a market or bank based system matter are market based or bank based financial systems better at financing the expansion of industries that depend heavily on external finance facilitating the formation of new establishments and improving the efficiency of capital allocation across industries we find evidence for neither the market based nor the bank based hypothesis while legal system efficiency and overall financial development boost industry growth new establishment formation and efficient capital allocation having a bank based or market based system per se does not seem to matter much

does financial development affect growth this article contributes to the literature on the relationship between financial development and economic growth in three ways it utilizes recently developed techniques for generalized methods of moments gmm one step estimation with dynamic panel models it focuses exclusively on a sample of developing countries and it uses as proxies for financial development variables which capture both banking sector and stock market effects the results provide evidence based on a panel of annual data for 30 developing countries that while the stock market variables are positively and significantly related to growth their presence results in the standard banking sector variables credit to the private sector and liquid liabilities having negative effects on growth

the permanent effects of innovation on financial depth abstract this paper examines links between innovation in the us intermediating sector and financial deepening from 1872 1929 technical progress is modeled in a credit rationing framework with limited liability as an enhanced ability of intermediaries to monitor loan recipients this allows an innovating lender to earn temporary rents by lowering loan rates and inducing firms with higher repayment prospects to apply rents persist until others adopt the improvement and competition for loanable funds raises the deposit rate subsequent deposits ensure that more funds are channeled to projects of higher average quality the link between the loan deposit spread and financial deepening implied by the model is then examined in an unobservable components framework the finding that permanent reductions of 1 in the spread of new york banks are associated with increases in financial depth that range from 1 7 to nearly 4 is consistent with a role for efficiency improvements in the rapid financial deepening that characterized the pre 1930 us economy

the spatial diffusion of secondary impacts rural urban spillovers in grampian scotland the paper analyzes rural urban spillover effects using a bi regional sam model which allows for flows of commodities and factor incomes between the two areas multiplier decomposition is used to investigate the nature of spillovers the results indicate stronger spillover effects from urban to rural grampian than viceversa in contrast results from a restricted input output version of the model suggest that the effects are more consistent with nodal response input output an alysem say produce biased results and studies of contemporary rural urban relationships should look beyond production linkages to the broader range of relationships within a sam framework

financial development and economic growth international evidence the importance of the relationship between financial development and economic growth has been well recognized and emphasized in the field of economic development 1 although recent writings on this subject seem to accept the hypothesis that financial development is crucial for successful economic growth 2 patrick asked the critical question which sector financial or real leads in the dynamic process of economic development patrick identified two possible patterns in the causal relationship between financial development and economic growth in the first growth induces an expansion of the financial system 3 according to this view called demand following the lack of financial growth is a manifestation of the lack of demand for financial services as the real side of the economy develops its demands for various new financial services materialize and these are met rather passively from the financial side in the second pattern the expansion of the financial system precedes the demand for its services channeling scarce resources from small savers to large investors according to relative rates of return the financial sector precedes and induces real growth the deliberate establishment and promotion of financial institutions in many less developed countries ldcs might reflect this belief in the supply leading relationship between the two developments a natural question then concerns the direction of causality between financial development and economic growth patrick asserted that the direction of causality changes over the course of development in his view financial development is able to induce real innovation type investment before sustained modern economic growth gets under way and as the process of real growth occurs the supply leading impetus gradually becomes less important and the demand following financial response

financial development government ownership of banks and firm innovation abstract using a newly available world bank survey of over 28 000 firms from 46 countries we examine how financial development affects firm innovation around the world we find that while stock market development significantly enhances firm innovation banking sector development has mixed effects we show that the latter result can be explained by different levels of government ownership of banks specifically in countries with lower government ownership of banks banking sector development significantly enhances firm innovation while in countries with higher government ownership of banks banking sector development has no significant or sometimes even significantly negative effects on firm innovation such negative effects are significantly stronger for smaller firms the results are robust to various controls such as firms human capital and ownership structure to estimations using instrumental variable techniques and alternative measures of firm innovation

the implications of knowledge based growth for the optimality of open capital markets this paper re examines the view that opening capital markets must have long run benefits the analysis shows that the desirability of opening a country s capital markets depends on the nature of the technology assumed models of knowledge based growth predict that changes that alter the economy s level of production will also affect the economy s growth rate and hence the welfare of future generations standard neoclassical growth models imply no such effects on growth or welfare if production does involve an important element of learning by doing inference from the standard models may be seriously misleading in particular opening capital markets does not necessarily improve welfare for the nation or for the world as a whole

the dawn of an age of deposits in the united states abstract individual deposits in the united states grew from 5 to 23 of gdp between 1863 and 1913 a comprehensive database shows bank entry underlying this trend while historical events including the national banking acts resumption in 1879 and the election of 1896 influenced deposits at the bank level the nation s embrace of deposits was thus driven by stability of the monetary system and confidence in the safety and utility of established and well capitalized banks bank level and county level regressions confirm these patterns for national banks over the entire postbellum period and for a sample of midwest state and national banks from 1888

financial market development and trade openness evidence from emerging economies international trade is said to be the engine of economic growth despite an enormous effort to explain this phenomenon the relationship between financial market development and trade openness and integration into the world economy is still an enigma this article investigates the relationship between financial market development and trade openness to do this we develop a long run and short run model a bounds testing approach to cointegration for 18 emerging economies over the period 1980 to 2011 estimates from all models show that financial market development including both the stock market and the banking sector has significant effect on trade openness in both short run and long run phenomena in the majority of countries despite many similarities among emerging economies additional evidence suggests that the link between either stock market development or banking sector development with trade openness works via each country s specific structure

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

international risk sharing and economic growth international risk sharing which diversifies away income risk will reduce saving with constant relative risk aversion if growth arises from the external effects of human capital accumulation then reducing saving will reduce growth welfare also may fall with risk sharing because endogenous growth with external effects of capital accumulation typically implies a competitive equilibrium growth rate already less than the optimal growth rate we demonstrate these results in a standard representative agent economy diversifying away rate of return risk also will reduce saving and growth rates if relative risk aversion exceeds one but this diversification always increases welfare this paper studies the effects of international risk sharing portfolio diversification in a world economy in which growth rates of income are endogenous growth is based upon the spillover effects of human capital accumulation as in lucas 1988 and romer 1986 there are positive economy wide spillovers of human capital intensity on individual labour productivity in section 2 we construct a multi country growth model with an infinitely lived representative agent in each country each country faces income risk but there is no aggregate uncertainty at the world level we focus on two market structures in the first structure there are no markets which allow for international diversification of country specific income risk in the second structure there are complete international markets for risksharing with no aggregate world uncertainty this completeness allows full diversification of country specific risk the paper has two central results first growth rates in all countries are lower in the equilibrium with full diversification second in this same structure welfare of each country may be lower than in an equilibrium without risk sharing the reasoning is as follows with external effects of capital accumulation the compet

consumption puzzles and precautionary savings abstract when marginal utility is convex agents accumulate savings as a precautionary measure against labor income eventualities this paper shows that precautionary savings can go a long way in making the excess growth excess smoothness and excess sensitivity features of consumption consistent with the stochastic processes of labor income observed in the u s at the microeconomic level

what is happening to the impact of financial deepening on economic growth i introduction among the strongest elements of the modern economists canon is that financial sector development has a significant impact on economic growth a generation ago economists like goldsmith 1969 1 and mckinnon 1973 began to draw attention to the benefits of financial structure development and financial liberalization by the early 1990s mckinnon 1991 12 could write with confidence that now however there is widespread agreement that flows of saving and investment should be voluntary and significantly decentralized in an open capital market at close to equilibrium interest rates since the 1990s a burgeoning empirical literature has illustrated the importance of financial sector development for economic growth despite the growing consensus however we find that the link between finance and growth in cross country panel data has weakened considerably over time at the very time that financial sector liberalization spread around the world the influence of financial sector development on economic growth has diminished the seminal empirical work that established the growth finance link is king and levine 1993 which extended the cross country framework introduced in barro 1991 by adding financial variables such as the ratios of liquid liabilities or claims on the private sector to gross domestic product gdp to the standard growth regression they found a robust positive and statistically significant relationship between initial financial conditions and subsequent growth in real per capita incomes for a cross section of about 80 countries in the subsequent decade numerous empirical studies expanded upon this using both cross country and panel data sets for the post 1960 period 2 in this paper we reexamine the core cross country panel result and find that the impact of financial deepening on growth is not as strong with more recent data as it appeared in the original panel studies with data for the period from 1960 to 1989 we consider various explanations for this clear shift first we suggest that financial deepening has a positive effect on growth if not done to excess rapid and excessive deepening as manifested in a credit boom can be problematic even in the most developed markets because it can both weaken the banking system and bring inflationary pressures we test this hypothesis by looking at the finance growth nexus among countries that have or have not experienced financial sector crises we find that once crisis episodes are removed the finance growth relationship remains intact its weakening over time thus seems to be a result of an increased incidence of crises in later years our second and related hypothesis is that the widespread liberalization of financial markets that occurred in the late 1980s and early 1990s made financial deepening less effective this is reminiscent of robert lucas s 1975 critique of econometric policy evaluation advanced three decades ago policies that have promoted and or forced increases in financial depth over the past two decades may have altered the basic structural relationship between finance and growth this could occur if the observed benefits of financial deepening led many countries to liberalize before the associated legal and regulatory institutions were sufficiently well developed as a consequence the impact of financial deepening on growth would become smaller our evidence does not indicate that recent liberalizations are responsible for the breakdown of the finance growth link however there may be an indirect link as premature financial development can lead to financial crises that have real effects third we examine the role of global equity markets that have grown in importance and prominence in the years over which the finance growth relationship disappeared however we do not find any evidence to suggest that equity market growth has substituted for the role of credit markets and banks in particular

the stock market monetary policy and economic development author affiliation edgar a ghossoub department of economics university of texas at san antonio san antonio tx 78249 usa e mail edgar ghossoub utsa edu robert r reed dagger department of economics finance and legal studies 200 alston hall university of alabama tuscaloosa al 35487 e mail rreed cba ua edu corresponding author acknowledgment we thank two anonymous referees and the co editor kent kimbrough for their insightful comments 1 introductiona vast amount of research in macroeconomics studies the role of financial markets for economic development for example king and levine 1993 document that active banking systems help economies achieve higher rates of growth 1 in addition to banking systems other measures of financial development are important notably levine and zervos 1998 conclude that stock market liquidity promotes activity 2 however minier 2003 identifies nonlinearities in the relationship between stock market activity and growth in particular minier concludes that there are threshold effects from financial development to economic performance beyond a threshold level of financial development growth and stock market activity are positively related however the correlation is not observed in countries with small stock markets consequently access to a stock market may result in a significant increase in economic activity or it may have little impact 3in addition to the stage of financial development monetary policy also affects the development process while initial studies indicate that inflation is generally associated with slower economic progress more recent research concludes that the effects of monetary policy vary across countries bae and ratti 2000 observe that higher rates of money growth are correlated with lower levels of output in argentina and brazil in contrast bullard and keating 1995 point out that inflation may be associated with an increase in output in low inflation countries in particular the recent work of ahmed and rogers 2000 finds evidence of a tobin effect for the united states 4 5why does the impact of financial development vary across countries furthermore why does the effect of monetary policy also differ across countries in this article we demonstrate that the impact of financial development depends on the services provided by various financial markets that is the economic functions of banks may be substantially different than stock markets although different types of financial markets fulfill unique allocative functions there has been surprisingly little attention devoted to studying the ways in which asset markets collectively interact from a general equilibrium perspective 6 furthermore previous work does not address how the role of monetary policy depends on the extent of financial market development we attempt to fill this gap by developing a monetary growth model that incorporates money bank deposits and equity 7 as in schreft and smith 1998 spatial separation and limited communication create a role for money and commercial banks in our economy young individuals are subject to random relocation shocks as money is the only asset that can cross locations relocated agents must liquidate all their asset holdings into currency thus random relocation is analogous to the liquidity preference shocks in diamond and dybvig 1983 as a result our model illustrates the risk pooling role of financial intermediaries in contrast to banks we consider that the stock market promotes economic development by establishing a market in which capital can be transferred across time for example this may reflect specialization of factor inputs to illustrate such ideas we consider the following motivation individuals in the economy have specialized production technologies

financial intermediary development and growth volatility do intermediaries dampen or magnify shocks the authors extend the recent literature on the link between financial development and economic volatility by focusing on the channels through which the development of financial intermediaries affects economic volatility their theoretical model predicts that well developed financial intermediaries dampen the effect of real sector shocks on the volatility of growth while magnifying the effect of monetary shocks suggesting that overall financial intermediaries have no unambiguous effect on growth volatility the authors test these predictions in a panel data set covering 63 countries over the period 1960 97 using the volatility of terms of trade to proxy for real volatility and the volatility of inflation to proxy for monetary volatility they find no robust relationship between the development of financial intermediaries and growth volatility weak evidence that financial intermediaries dampen the effect of terms of trade volatility and evidence that financial intermediaries magnify the impact of inflation volatility in low and middle income countries

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society

spatial aspects of retail market structure beef pricing revisited abstract spatial retail markets with multiplant firms and conjectural variations are analyzed in this paper in this context the interplay between commuting characteristics and concentration is discussed leading to an empirical test for the effect of those variables on retail beef prices commuting characteristics are found to have a significant effect on prices this suggests that a significant concentration price relationship might emerge if retail markets were defined in the narrow way that the spatial retail model suggests that they should be

causality in the suburbanization of population and employment abstract using the slope of the density function as a measure of centralization we find that suburbanization of the residential population is enhanced by rising income and suburbanization of employment in the transportation communication and public utilities and service sectors and by the failure of manufacturing to decentralize suburbanization of population is only a positive force in promoting decentralization of the service and retail sectors however there are a number of interesting interactions between decentralization of some industrial sectors and suburbanization of other sectors overall our results differ significantly from those of previous studies which failed to disaggregate employment by industry and which aggregated change over decennial rather than annual time intervals

financial development income inequality and the redistributive effects of monetary policy abstract how should financial systems be designed to limit income inequality does the redistributive impact of inflation depend on the extent of financial development should optimal monetary policy vary across countries with different levels of financial development in order to address these questions we develop a monetary growth production model with heterogeneous agents in our economy optimal policy needs to weigh the effects of policy across two groups capital owners and individuals who hold liquid assets in this environment we compare various economies that are identical in every aspect except for their level of financial development interestingly we generally find that economies at the highest stages of financial development economies in which money bonds and claims to capital are traded experience the highest amount of capital formation and social welfare as long as inflation is low yet regardless of the extent of financial development there are generally redistributive consequences from inflation moreover the model tends to predict that economies with relatively small stock markets produce the highest levels of income inequality empirical work examining the role of money growth and the implications of financial development across countries is consistent with predictions from the model

interrelationships among banks stock markets and economic growth an empirical investigation this article utilizes a simultaneous equations model to study the relationships among economic growth banking and stock market development in contrast to conventional instrumental variable approach we implement the analysis via the methodology of identification through heteroscedasticity using beck and levine 2004 dataset we find that each of the three variables interacts in important ways while both are conducive to economic growth banking development matters more for growth in low income countries and stock market development is more favourable to growth in high income or low inflation ones the data also reveal coexistence of a positive effect of banking development on stock market development and a negative effect of stock market development on banking development besides the feedback effects of growth on both banking and stock market development are found

financial intermediation and endogenous growth an endogenous growth model with multiple assets is developed agents who face random future liquidity needs accumulate capital and a liquid but unproductive asset the effects of introducing financial intermediation into this environment are considered conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital causing intermediation to be growth promoting in addition intermediaries generally reduce socially unnecessary capital liquidation again tending to promote growth

stock markets and development this paper asks if financial development especially stock market development affects the level and or the growth rate of economic activity it finds a substantial effect on both current wisdom suggests that the growth effects of financial intermediation could be either permanent or transitory for instance the greenwood jovanovic 1990 henceforth gj model has an ak stucture with no diminishing returns to the reproducible factor and a permanent exogenous improvement in financial structure would cause a permanent increase in the rate of growth on the other hand if the returns to the reproducible factor did diminish better intermediation could lead only to level effects since one should not a priori exclude either growth effects or level effects we shall look for both our search for growth effects will use the gj model our search for level effects will rely on an amended version of the mankiw romer and weil 1992 henceforth mrw structure

financial development and economic growth a meta analysis we analyze 1334 estimates from 67 studies that examine the effect of financial development on economic growth taken together the studies imply a positive and statistically significant effect but the individual estimates vary widely we find that both research design and heterogeneity in the underlying effect play a role in explaining the differences in results studies that do not address endogeneity tend to overstate the effect of finance on growth while the effect seems to be weaker in less developed countries the effect decreases worldwide after the 1980s our results also suggest that stock markets support faster economic growth than other financial intermediaries

same financial development yet different economic growth why we re study the relationship between financial development and real gdp per capita growth in 48 countries what we find is an interesting evidence that only stock market development has positive effects on growth and that banking development has an unfavorable if not negative effect on growth we examine whether or not these impacts are a product of various financial and economic conditional variables our conditional variables consist of financial liberalization two sets of country development dummies crises in banking and currency dummies the creditor protection index as well as the anti director and corruption indices our results clearly show that the conditional variables of financial liberalization high income level and good shareholder protection mitigate the negative impacts of banking development on growth in contrast the conditional variables of middle income level regional latin american sub saharan african and east asian dummies banking and currency crises good creditor protection and higher corruption strengthen the negative impacts of banking development on growth next the conditional variables of middle income level latin american sub saharan african and east asian dummies strengthen the positive impacts of stock market development on growth whereas the conditional variables of financial liberalization mitigate the positive impacts of stock market development on growth last we find that the relationship between growth and bank development is better described as a weak inverse ushape this inverse u shape becomes stronger when additional stock market variables are squared thus financial development and growth may in fact be in a nonlinear form

the precious bane abstract are natural resources harmful to growth we address this question using a two sector endogenous growth model in which human capital is the engine of growth by increasing the rewards to unskilled labor natural resources make schooling more expensive as long as the intertemporal elasticity of consumption substitution is not too high this slows down human capital accumulation and growth the presence of production spillovers from human capital however implies that a planner could react to a resource boom by increasing human capital accumulation even though the decentralized solution yields the exact opposite the paper also shows that as the production complementarity between natural resources and unskilled labor declines the growth effects of natural resources become increasingly sensitive to whether or not there is free trade in goods the empirical evidence lends support to the main channel natural resources to human capital to growth that is suggested in the paper

local banking and local economic growth in italy some panel evidence this paper provides new evidence on the contribution of local banking to local economic growth i e at county level the italian province in italy a comprehensive dataset is used which includes control variables for social capital and human capital as well as indicators of the quality of local infrastructures and the production structure of the local economy a linear within estimator technique with fixed effects is applied to a modified version of the so called barro regression cecchetti and karrhoubi 2013 in order to address the well known econometric issues of reverse causality and estimation bias resulting from unobserved district specific influences

capital freedom financial development and provincial economic growth in china for more than three decades china has managed to combine rapid economic growth with a strictly regulated financial sector the discrepancy between economic and financial development has raised the

growth and risk sharing with private information abstract we examine the impact of incomplete risk sharing on growth and welfare the source of market incompleteness in our economy is private information a household s idiosyncratic productivity shock is not observable by others risk sharing between households occurs through long term contracts with intermediaries we find that incomplete risk sharing tends to reduce the rate of growth relative to the complete risk sharing benchmark numerical examples indicate that the welfare cost and the growth effect of private information are small

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

developments in social accounting methods as applied to the analysis of income distribution and employment issues abstract research into the design construction and use of social accounting matrices sams for the analysis of income distribution issues in development policy and planning is generally discussed specific case studies for swaziland botswana and kenya are considered and the accounting classifications are compared especially those for households the use of the swaziland and botswana sams to analyse some of the distributional effects of certain exogenous impacts such as the outbreak of a foot and mouth epidemic in botswana is also discussed this includes a presentation of methodology as well as some results of the analyses

decomposing multipliers for economic systems involving regional and world trade this paper is concerned with the analysis of linkages between economic systems and the spillover and possible feedback effects one system may have on another it is not a new topic the initial stimulus in the literature coming from machlup i943 and the seminal papers by metzler i950 and chipman i950 almost precisely the same questions raised by these authors have been readdressed subsequently by many writers and in a variety of contexts most recently goodwin i983 has developed a world matrix multiplier with much the same overall objectives as machlup and metzler in mind metzler s proposition was to understand the mechanism by which an expansion or contraction of income in one region or country is transmitted to other regions or countries in addition he assumed that the conclusions apply without modification to the regions within a single country or indeed to any regional classification of the world economy such as the economies comprising eastern europe western europe latin america and similar regions 2 in fact the question has also long occupied the attention of many regional economists working in the context of sub national regions the question of interdependence between sub national regional economies generally assumes a special importance simply because such regions are relatively open economies and are subject to fewer natural and artificial barriers to commodity trade and factor movements than may exist between countries 3 even so interest has focused almost exclusively on regional interdependence through commodity trade and within the framework of multiregional input output systems 4 however there are some exceptions klein and glickman i 9 77 have developed a multiregional model of a fairly aggregative nature which incorporates other regional interdependencies a review of this and similar models has been carried out by glickman i97 7 paralleling this interest in inter regional interdependence at the sub national level there has been a revived interest in questions of linkage at the international level with the advent of the project link model pioneered by klein and hickman 5 the united nations model of the world economy leontief et al

credit income and causality a contemporary co integration analysis abstract in this study we investigate the macroeconomic fundamental issue of causal relationship between credit and money income for the us postwar economy along the lines of the credit view theorists in the long run we provide significant evidence that credit causes income further we support the view that there is a rather weak causality effect from income to credit in the long run indeed we identified that there is a dynamic causality effect in the short run from income changes to credit ones a contemporary co integration analysis is applied using the maximum likelihood method additionally considering the formulated var a stability analysis of the equivalent first order dynamic system has been performed finally dynamic forecasts from the corresponding ecvar error correction var are obtained in order to verify the validity of the co integration vector used it may be useful to mention that we have not met in the relevant literature the type of forecasting presented here

the quality effect does financial liberalization improve the allocation of capital abstract we document evidence of a quality effect of financial liberalization on allocative efficiency as measured by dispersion in tobin s q across firms we predict that financial liberalization by equalizing access to credit is associated with reduced variation in expected marginal returns we test this prediction using a new financial liberalization index and firm level data for five emerging markets india jordan korea malaysia and thailand we find robust evidence that financial liberalization rather than financial deepening is associated with improved allocative efficiency

the financial development and growth nexus a meta analysis this is the accepted manuscript the final version is available from wiley at http onlinelibrary wiley com doi 10 1111 joes 12086 abstract

stock markets banks and growth panel evidence this paper investigates the impact of stock markets and banks on economic growth using a panel data set for the period 1976 98 and applying recent gmm techniques developed for dynamic panels on balance we find that stock markets and banks positively influence economic growth and these findings are not due to potential biases induced by simultaneity omitted variables or unobserved country specific effects

costly monitoring financial intermediation and equilibrium credit rationing abstract this paper establishes a link between equilibrium credit rationing and financial intermediation in a model with asymmetrically informed lenders and borrowers costly monitoring and investment project indivisibilities intermediation is shown to dominate borrowing and lending between individuals and these financial intermediaries exhibit several of the important features of intermediaries as we know them equilibrium interest rates and the aggregate quantity of loans respond quite differently to changes in taste and technology parameters depending on whether or not there is rationing in equilibrium

an economic theory of central places is not really a theory of spatial economic behaviour instead it is a series of brilliant conjectures about the locational configurations that will result from such behaviour the brilliance of these conjectures is illustrated by the successful applications of the theory to such diverse phenomena as the locational patterns of retailing activity in cities and of service centres in rural areas the size distribution of cities and the diffusion of information and diseases in this paper we outline an economic model of central places 2 our theorising has two distinct purposes first we wish to begin the development of a theory of central places that is based on maximising behaviour of economic agents any theory of economic behaviour from which central places can be derived is necessarily both difficult and cumbersome non convexities in the activities of buying and selling drive the model and thus non differentiabilities and discontinuities abound as one seeks more generality in such circumstances difficulties multiply rapidly in order to begin the job we have used assumptions that are specific and sometimes even crude the second purpose of our theorising is to illustrate the limitations of current central place theory by providing counter examples to some propositions commonly accepted to follow from it for this purpose we need not worry about lack of generality in any of our counter examples of course we are not solely concerned to refute accepted generalisations by doing so we hope to make alternative possibilities apparent what we hope to attain therefore is a theoretical development inspired by the extremely fruitful conjectures of existing central place theory

financial intermediation and economic performance historical evidence from five industrialized countries this paper examines the nature of links between the intensity of financial intermediation and economic performance that operated in the united states the united kingdom canada norway and sweden over the 1870 1929 period after describing the coevolution of the financial and real sectors in these countries vector error correction models vecms establish the quantitative importance of long run relationships among measures of financial intensity and real per capita levels of output and the monetary base granger causality tests then suggest a leading role for the intermediation variables in real sector activity while feedback effects are largely insignificant the results suggest an important role for intermediation in the rapid industrial transformations of all five countries

directed credit financial development and financial structure theory and evidence the recent initiative of the rbi in reviving the policy of directed credit allocation in a period dominated by the neoliberal philosophy necessitates reconsideration of the role of policy directed

financing development the role of information costs to address how technological progress in nancial intermediation aects the economy a costly state veri cation framework is embedded into the standard growth model the framework has two novel ingredients first rms dier in the risk return combinations that they oer second the e cacy of monitoring depends upon the amount of resources invested in the activity a nancial theory of rm size results undeserving rms are over nanced deserving ones under funded technological advance in intermediation leads to more capital accumulation and a redirection of funds away from unproductive rms toward productive ones quantitative analysis suggests that nance is important for growth

financial development and economic growth abstract this paper examines the empirical relationship between long run growth and financial development proxied by the ratio between bank credit to the private sector and gdp we find that this proxy is positively correlated with growth in a large cross country sample but its impact changes across countries and is negative in a panel data for latin america we argue that the latter findings is the result of financial liberalization in a poor regulatory environment our findings also show that the main channel of transmission from financial development to growth is the efficiency rather than the volume of investment

habit persistence and welfare gains from international asset trade we introduce habit formation in a model that studies the link between international trade in financial assets economic growth and welfare as with time separable preferences asset trade increases the mean growth rate but it also increases growth volatility we demonstrate that the welfare gain from asset trade is lower with habit persistence in consumption this reflects that the habit forming households perceive the higher growth volatility as a higher cost to obtain increased average growth calibrating the model to data for north america and western europe we find that habit persistence lowers welfare gains of financial integration by about 40 50

bank competition and access to finance international evidence using a unique database for 74 countries and for firms of small medium and large size we assess the effect of banking market structure on the access of firms to bank finance we find that bank concentration increases obstacles to obtaining finance but only in countries with low levels of economic and institutional development a larger share of foreign owned banks and an efficient credit registry dampen the effect of concentration on financing obstacles while the effect is exacerbated by more restrictions on banks activities more government interference in the banking sector and a larger share of government owned banks

what matters in the finance growth nexus of advanced economies evidence from oecd countries over the last decades a large strand of finance and growth literature has provided ample evidence on the importance of financial deepening for economic development yet recently the focus of pub

finance and inequality the case of india although theory emphasizes the role of financial market frictions in explaining income inequality there is little empirical research exploring how financial development and financial sector reforms influence the evolution of income inequality this article examines how finance impacts income inequality in india using annual time series data for over half a century the results indicate that while financial development helps reduce income inequality financial liberalization seems to exacerbate it the results are robust to the use of different measures for financial development and financial liberalization although the relationship between financial development and economic growth has been extensively studied in the literature see for example king and levine 1993 demetriades and hussein 1996 arestis and demetriades 1997 levine loayza and beck 2000 bell and rousseau 2001 ang and mckibbin 2007 little is known about how finance impacts income inequality the importance of the finance inequality relationship has recently been highlighted in an insightful survey article by claessens and perotti 2007 they indicate that while financial development can help reduce income inequality financial liberalization captured by established interests may do the opposite the theoretical predictions of the effects of finance on income inequality are controversial rajan and zingales 2003b argue that improvements in the formal financial sector primarily benefit the rich greenwood and jovanovic 1990 predict a nonlinear relationship between financial development and income inequality where it is hypothesized that income inequality first increases with the degree of sophistication in the financial systems then stabilizes and eventually declines others propose that the presence of financial market imperfections deters the poor from borrowing adequately to invest in human and physical capital implying that financial development helps alleviate income inequality banerjee and newman 1993 galor and zeira 1993 aghion and bolton 1997 mookherjee and ray 2003 2006 given that theories provide ambiguous predictions regarding the effects of finance on the distribution of income it is useful to approach the issue at the empirical level this could facilitate our understanding of the relationship between finance and inequality and help us to assess the validity of each theoretical model despite the important role of financial market frictions in the theories of poverty and income inequality researchers so far have not adequately addressed whether financial

capital market imperfections and financialization of real sectors in emerging markets private investment and cash flow relationship revisited summary the paper analyzes the impacts of cash flow from multiple investments in real and financial sectors on the new fixed investment spending of real sector firms the empirical results based on the euler equation approach and semi annual firm level data from two major emerging markets mexico and turkey suggest that profits and rates of returns from fixed and financial assets have differential effects on fixed investment spending of real sector firms accordingly increasing availability and accessibility of alternative investment opportunities in financial markets can become instrumental in channeling real sector savings to short term financial investments instead of long term fixed capital formation and thus lead to deindustrialization

infrastructure finance and industrial takeoff in england that financial matters did not constrain industrial takeoff in the uk is generally accepted in the historical literature in contrast contemporary empirical analyses have found evidence that financial development can be a causal determinant of economic growth we look to reconcile these findings by concentrating on a particular aspect of industrializing uk where inefficiencies in finance could have had bite the finance of physical infrastructures we document the historical record and develop the importance of spatial disaggregation and spillovers in both technological and financial development we develop a simple model that captures the nature of infrastructure finance within a theory of endogenous growth where financial costs are endogenous we argue that the conception of the finance growth nexus as a largely static aggregative phenomenon misses out a good deal of complexity and we relate that complexity to a number of implications for regulation of both financial systems and the emergence of infrastructures

transactions costs technological choice and endogenous growth abstract hicks a theory of economic history clarendon press oxford 1969 argues that an important aspect of industrial development is the adoption of technologies requiring highly illiquid capital investments the adoption of such technologies becomes economically viable in the presence of low cost financial markets that provide liquidity to investors this observation provides a mechanism by which the costs of transacting in financial markets affect the equilibrium choice of technology productive efficiency and by implication growth we analyze how the costs of financial market transactions affect the set of technologies in use and the equilibrium growth rate transactions cost reductions may depending on the capital structure enhance or reduce growth journal of economic literature classification numbers d90 e13 g14

do non intermediation services tell us more in the finance growth nexus causality evidence from eight oecd countries abstractthis paper provides new evidence on a traditional finance growth nexus through dividing financial services into financial intermediation and non intermediation services and examining their

cyclical uncertainty precautionary saving and economic growth this paper studies the interaction between cyclical uncertainty precautionary saving and economic growth in a stochastic endogenous growth model the analysis provides insight into the potential connection between technological uncertainty of the sort popularized in real business cycle models and the determinants of economic growth in a stochastic version of a popular model of endogenously determined economic growth the magnitude of the link between cyclical uncertainty and growth is quantified and found to be small in terms of its effect on the growth rate but possibly large in terms of its effect on levels of macroeconomic variables moreover the welfare costs of reduced cyclical uncertainty can be substantial owing to the lower historical rate of capital accumulation induced by a decrease in precautionary saving the chief implications of the model are found to be roughly consistent with the postwar experience of several countries although the predictions of the model with regard to growth rates are too small to explain much of the variation in growth rates across time or across countries

idiosyncratic production risk growth and the business cycle we introduce a neoclassical growth economy with idiosyncratic production risk and incomplete markets each agent is an entrepreneur operating her own technology with her own capital stock the general equilibrium is characterized by a closed form recursion in the cara normal case incomplete markets introduce a risk premium on private equity which reduces the demand for investment as compared to complete markets the steady state can thus have both a lower capital stock due to investment risk and a lower interest rate due to precautionary savings furthermore the anticipation of high real interest rates in the future feeds back into high risk premia and low investment in the present thus slowing down convergence to the steady state our results highlight the importance of private risk premia for capital accumulation and business cycles

financial markets and growth the last five years have witnessed a resurgence of interest in the relationship between financial intermediation and economic growth this issue had been extensively studied nearly two decades earlier by goldsmith 1969 mckinnon 1973 shaw 1973 and others who produced considerable evidence that financial development correlates with growth but their work though insightful lacked analytical foundations in traditional growth theory financial intermediation could be related to the level of the capital stock per worker or to the level of productivity but not to their respective growth rates the latter were ascribed to exogenous technical progress the recent revival of interest in the link between financial development and growth stems mainly from the insights and techniques of endogenous growth models which have shown that there can be self sustaining growth without exogenous technical progress and that the growth rate can be related to preferences technology income distribution and institutional arrangements this provides the theoretical underpinning that early contributors lacked tinancial intermediation can be shown to have not only level effects but also growth effects the resulting models have offered important insights into the effect of financial development on growth and vice versa they have also provided new impetus to empirical research on these issues this paper reviews the ground covered so far on the theoretical and empirical front and points to some still unresolved issues

economic impacts value added and benefits in regional project analysis this paper addresses five issues encountered when estimating secondary benefits in regional project analysis a the correction for opportunity cost of factors used b the treatment of mobile factors c the effect of economies of size d the role of forward linkages and e the role of spatial structure of economic regions the first four are reasons that only a small part if any of regional impacts can be treated as regional net benefits the fifth is a reason that when secondary benefits or damages do exist their correct estimation can depend on the spatial structure of the affected areas

financial intermediary coalitions abstract in this article an environment in which the investment opportunities of agents are private information is studied and it is shown that financial intermediaries arise endogenously within that environment it is established that financial intermediaries are part of an efficient arrangement in the sense that they are needed to support the authors private information core allocations these intermediaries which are coalitions of agents exhibit the following characteristics in equilibrium they borrow from and lend to large groups of agents they produce information about investment projects and they issue claims that have different state contingent payoffs than claims issued by ultimate borrowers

what type of finance matters for growth bayesian model averaging evidence this paper examines the effect of finance on long term economic growth using bayesian model averaging to address model uncertainty in cross country growth regressions the literature largely focuses on financial indicators that assess the financial depth of banks and stock markets these indicators are examined jointly with newly developed indicators that assess the stability and efficiency of financial markets once the finance growth regressions are subjected to model uncertainty the results suggest that commonly used indicators of financial development are not robustly related to long term growth however the findings from the global sample indicate that one newly developed indicator the efficiency of financial intermediaries is robustly related to long term growth

commodity trade and international risk sharing how much do financial markets matter abstract this paper evaluates the social gains from international risk sharing in some simple general equilibrium models with output uncertainty a simulation model calibrated to selected moments of u s and japanese data estimates the incremental loss from a ban on international portfolio diversification to be on the order of 0 20 percent of output per year even the theoretical gains from asset trade may disappear under alternative sets of assumptions on preferences and technology the paper argues that the small magnitude of potential trade gains may help explain the apparently inconsistent findings of empirical studies on the degree of international capital mobility

a closed form solution for a model of precautionary saving this paper analyses life cycle consumption plans and distinguishes between temporal risk aversion and intertemporal substitution the results assume that felicity functions are quadratic and that income follows a linear model with normally distributed errors stochastic dynamic programming then yields closed loop linear decision rules certainty equivalence no longer holds but instead households play a min max strategy against nature one finds a rationale for precautionary saving and a larger sensitivity of changes in consumption to income innovations

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

welfare gains from financial liberalization financial liberalization has been a controversial issue as empirical evidence for growth enhancing effects is mixed here we find sizable welfare gains from liberalization cost to repression though the gain in economic growth is ambiguous we take the view that financial liberalization is a government policy that alters the path of financial deepening while financial deepening is endogenously chosen by agents given a policy and occurs in transition towards a distant steady state this history dependent view necessitates the use of simulation analysis based on a growth model our application is a specific episode thailand from 1976 to 1996

inflation thresholds and the finance growth nexus abstract the robustness of the cross sectional relationship between the size of a country s financial sector and its rate of economic growth is by now well established in this article we examine whether the strength of this relationship varies with the inflation rate using five year averages of standard measures of financial development inflation and growth for 84 countries from 1960 to 1995 a series of rolling panel regressions show that there is an inflation threshold for the finance growth relationship that lies between 13 and 25 percent when inflation exceeds the threshold finance ceases to increase economic growth we also find that the level of financial depth varies inversely with inflation in low inflation environments and that disinflation is associated with a positive effect of financial depth on growth

spatial differentiation and vertical mergers in retail markets for gasoline this paper studies an empirical model of spatial competition applied to gasoline markets the main feature is to specify commuting paths as the locations of consumers in a hotelling style model as a result spatial differentiation depends in an intuitive way on the structure of the road network and the direction of traffic flows the model is estimated using panel data on the quebec city gasoline market and used to evaluate the consequences of a recent vertical merger difference in difference and counterfactual simulation methods are compared and the results to a large extent validate the assumptions of the demand model jel g34 l13 l42 l81 q41 r41

a survey of recent developments in the literature of finance and growth this paper provides a survey of the recent progress in the literature of financial development and economic growth the survey highlights that most empirical studies focus on either testing the role of financial development in stimulating economic growth or examining the direction of causality between these two variables although the positive role of finance on growth has become a stylized fact there are some methodological reservations about the results from these empirical studies several key issues unresolved in the literature are highlighted the paper also points to several directions for future research

national culture and corporate debt maturity abstract we investigate the influence of national culture on corporate debt maturity choice based on the framework of williamson we argue that culture located in social embeddedness level can shape contracting environments by serving as an informal constraint that affects human actors incentives and choices in market exchange we therefore expect national culture to be related to debt maturity structure after controlling for legal political financial and economic institutions using hofstede s four cultural dimensions uncertainty avoidance collectivism power distance and masculinity as proxies for culture and using a sample of 114 723 firm years from 40 countries over the 1991 2006 period we find robust evidence that firms located in countries with high uncertainty avoidance high collectivism high power distance and high masculinity tend to use more short term debt we interpret our results as consistent with the view that national culture helps explain cross country variations in the maturity structure of corporate debt

stock markets and development a re assessment abstract this paper re examines the empirical relationship between stock markets and economic growth in contrast with atje and jovanovic stock markets and development european economic review 37 pp 632 640 1993 it finds no hard evidence that the level of stock market activity helps to explain growth in per capita output estimating their model using current investment rather than lagged investment suggests that the stock market effect may be weaker than they found two stage least squares is used to circumvent the possible endogeneity of current investment the sample is divided into developed and less developed countries for the less developed sample the stock market effect as with the full sample is at best very weak for the developed countries however stock market activity does have some explanatory power

equity markets and growth cross country evidence on timing and outcomes 1980 1995 abstract the rapid expansion of organized equity exchanges in both emerging and developed markets has prompted policymakers to raise important questions about their macroeconomic impact yet the need to focus on recent data poses implementation difficulties for econometric studies of dynamic interactions between stock markets and economic performance in individual countries this paper overcomes some of these difficulties by applying recent developments in the analysis of panels with a small time dimension to estimate vector autoregressions for a set of 47 countries with annual data for 1980 1995 after describing recent theories on the role of stock markets in growth and considering a pure cross sectional empirical approach our panel vars show leading roles for stock market liquidity and the intensity of activity in traditional financial intermediaries on per capita output the findings underscore the potential gains associated with developing deep and liquid financial markets in an increasingly global economy

output growth the real wage and employment fluctuations this paper is an attempt to contribute to the integration of business cycle analysis with long term growth a real business cycle model with endogenous growth is developed and estimated with u s data in the present framework wage movements do not have to be transitory to generate fluctuations in labor effort the reduced form is a constrained bivariate output hours or real wage hours vector autoregressive process the bivariate setup provides a useful framework for analyzing the persistence of output fluctuations given that the theory implies that hours of work contain information about future output movement copyright 1991 by american economic association

financial integration and growth in a risky world abstract we revisit the debate on the benefits of financial integration in a two country neoclassical growth model with aggregate uncertainty the framework accounts simultaneously for gains from a more efficient capital allocation and gains from risk sharing together with their interaction global numerical methods allow for meaningful welfare comparisons gains from integration are quantitatively small even for riskier and capital scarce emerging economies these countries import capital for efficiency reasons before exporting it for self insurance leading to capital flows and growth reversals along the transition this opens the door to richer empirical implications than previously considered in the literature

spatial retail markets with commuting consumers in this paper we analyse a model of spatial competition with commuting consumers due to claycombe 1991 international journal of industrial organization 9 303313 we show that results different from claycombe s are obtained if a rigorous game theoretic analysis is applied to the model our results provide a theoretical basis for a later study carried out by claycombe and mahan 1993 international journal of industrial organization 11 283 291 and lead to predictions which are in line with the empirical results of that later study for small commuting distances relative to the distance between firms there exists a symmetric equilibrium in which the price is continuous and decreasing in both the commuting distance and the proportion of commuting consumers for intermediate distances however a symmetric price equilibrium in pure strategies in general does not exist only if all consumers commute and the commuting distance is large perfect competition prevails

rural urban effects of terminating farm subsidies a rural urban interregional computable general equilibrium cge model is constructed to simulate the effects of terminating farm subsidies on household incomes employment rates farm and non farm sectoral activity regional costs of living and other economic indicators the magnitudes of the effects depend on regional factor and goods market segmentation robust short run implications are that ceasing farm subsidies would cause rural nonfarm particularly household service sector employment to fall and lead to lower household income on the other hand rural manufacturing activity expands and the cost of living falls relative to urban urban employment household income and land rents rise although termination of farm subsidies causes a decline in rural real product the urban real product gain outweighs rural losses

human capital risk and economic growth this paper develops a tractable incomplete markets model of economic growth in which households invest in risk free physical capital and risky human capital the paper shows that a reduction in uninsurable idiosyncratic labor income risk decreases physical capital investment but increases human capital investment growth and welfare a quantitative analysis based on a calibrated version of the model reveals that these effects are substantial and of the same order of magnitude as the effects of distortionary income taxation the analysis further suggests that government sponsored severance payments to displaced workers increase growth and welfare even if these payments have to be e nanced through distortionary income taxation

post independence india a case of finance led industrialization abstract this paper examines whether financial intermediaries have played a leading role in influencing india s economic performance after describing the evolution and functions of the financial sector we construct a set of vector autoregressive var and vector error correction models vecm to evaluate the strength and direction of the links between measures of formal intermediation and various economic aggregates the results suggest that i the financial sector was instrumental in promoting aggregate investment and output but also in the steady shift toward industry that has characterized india s development ii the operative channel was one of debt accumulation rather than improvements in total factor productivity and iii its contributions went beyond the passive support of fiscal policy

energy consumption and gdp revisited a panel analysis of developed and developing countries this paper applies a new panel data stationarity testing procedure first developed by carrion i silvestre et al 2005 econometrics journal 8 159 175 with panel vars that employ the generalized method of moment techniques in order to re investigate the dynamic interactions between energy consumption per capita lec and real gdp per capita lry in 22 developed and 18 developing countries when multiple breaks in the series are taken into account there is convincing evidence of panel stationarity for lec and lry in both groups the energy crises evidently had a substantive impact on both lec and lry in all sample countries furthermore our panel vars attest to bidirectional causality between lec and lry in developed countries but there is uni directional causality from lry to lec in developing countries finally from the orthogonalized impulse response functions all of the variables in the panel vars have a positive effect on each other but their impact is greater and more persistent in developing countries some important policy implications do emerge

interaction between economic and financial development this paper presents a model of financial and economic development which assumes the consumption of real resources by the financial sector financial development occurs endogenously as the economy reaches a critical threshold of economic development compared to financial autarky financial intermediaries allocate savings net of their costs of operation to more productive investments whenever the technology financed by intermediaries is more capital intensive than that operated in financial autarky the growth effect of financial development is ambiguous as a result financial development may be unsustainable however when financial development is sustainable the credit market becomes more competitive and more efficient over time and this could eventually contribute to economic growth nonetheless given monopolistic competition in the financial sector the level of entry into the credit market is generally inefficient for instance with diminishing returns to specialisation entrants might be too few at the early stages of economic development and too many later on

bias corrected estimation of panel vector autoregressions we derive a bias corrected least squares estimator for panel vector autoregressions with fixed effects the estimator is straightforward to implement and is asymptotically unbiased under asymptotics where the number of time series observations and the number of cross sectional observations grow at the same rate this makes the estimator particularly well suited for most macroeconomic data sets

core periphery economic linkage a measure of spread and possible backwash effects for the washington economy many questions regarding economic development should be viewed in a regional core periphery framework a core periphery input output model of the washington state economy was constructed the core region supplied the periphery with higher order services while the periphery furnished the core with natural resource based commodities weak backward linkages from major core industries to the periphery lead to rejection of the growth pole theory tenet that core growth supports periphery growth economic growth in the periphery was felt more strongly in the core because periphery sectors with strong within region effects generally had strong impacts in the core

investor protection optimal incentives and economic growth does investor protection foster economic growth to assess the widely held affirmative view we introduce investor protection into a standard overlapping generations model of capital accumulation better investor protection implies better risk sharing because of entrepreneurs risk aversion this results in a larger demand for capital this is the demand effect a second effect the supply effect follows from general equilibrium restrictions better protection i e higher demand increases the interest rate and lowers the income of entrepreneurs decreasing current savings and next period s supply of capital the supply effect is stronger the tighter are the restrictions on capital flows our model thus predicts that the positive effect of investor protection on growth is stronger for countries with lower restrictions cross country data provide support for this prediction as does the detailed examination of the growth experiences of south korea and india

financial markets in development and the development of financial markets what is the relationship between markets and development it is argued that markets promote growth and that growth in turn encourages the formation of markets two models with endogenous market formation are presented to analyze this issue the first examines the role that financial markets banks and stock markets play in allocating funds to the highest valued use in the economic system it is shown that intermediation will arise under weak conditions the second focuses on the role that markets play in supporting specialization in economic activity the consequences of perfect competition in market formation are highlighted