Working Paper: NBER ID: w3189
Authors: Jeremy Greenwood; Boyan Jovanovic
Abstract: A paradigm is presented where 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 Kuznets hypothesis. In particular, in the transi tion from a primitive slowgrowing economy to a developed fast-growing one, a nation passes through a stage where the distribution of wealth across the rich and poor widens.
Keywords: Financial Development; Economic Growth; Income Distribution
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial intermediation (G21) | Economic growth (O00) |
| Economic growth (O49) | Financial intermediation (G21) |