nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2007‒08‒08
two papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Finance and growth - a macroeconomic assessment of the evidence from a European angle By Elias Papaioannou
  2. Efficiency, Depth and Growth: Quantitative Implications of Finance and Growth Theory By Alex William Trew

  1. By: Elias Papaioannou (Dartmouth College, Economics Department, Hanover, NH 03755, USA.)
    Abstract: This paper reviews the literature on the finance-growth nexus within a neoclassical growth framework, placing an emphasis on the policy implications in the current European environment, that has placed financial reforms high on the policy Agenda. While more research is needed to establish causality and verify the theoretical channels linking access to finance and growth, firm-level, industry-level, macro, and country-specific studies all tend to show a significant correlation between financial efficiency and economic performance. The empirical evidence hint that in underdeveloped and emerging countries financial development fosters aggregate growth mainly by lowering the cost of capital, while in advanced economies by raising total-factor-productivity. JEL Classification: G00, O00.
    Keywords: Finance, Financial Institutions, Development, Growth Decomposition, Financial Intermediation, Europe, Productivity.
    Date: 2007–07
  2. By: Alex William Trew
    Abstract: 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.
    Keywords: finance and growth, endogenous growth, economic history.
    JEL: O11 O16 O40 N13 N23
    Date: 2007–07

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