Working Paper: NBER ID: w3669
Authors: Joseph E. Stiglitz
Abstract: Ideological debates on the role of government in development have focused on two contrasting prescriptions: one calling for large scale government interventions to solve problems of massive market failures, the other for the unfettering of markets, with the dynamic forces of capitalism naturally leading to growth and prosperity. This paper is part of an exploration of a middle road, focusing in particular on the role of government in financial markets. After explaining the importance of, and the limitations on, capital markets, particularly in allocating scarce investment resources, the results are used as a basis of a critique of the two 'extreme' approaches. Recognizing the limitations of government intervention as well as of free markets, the 'new view' of capital markets provides new insights into s variety of policy issues, which are addressed in the final section of the paper.
Keywords: government intervention; financial markets; economic development
JEL Codes: G18; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Government interventions (E65) | Economic development (O29) |
| Equity market development (G10) | Economic success (P17) |
| Government interventions (E65) | Capital accumulation (E22) |
| Government interventions (E65) | Capital allocation (G31) |