Can Financial Infrastructures Foster Economic Development?
25 Pages Posted: 27 Dec 2010
Date Written: January 2001
Abstract
In this paper, financial infrastructures increase the efficiency of the banking sector: they decrease the market power (due to horizontal differentiation) of the financial intermediaries, lower the cost of capital, increase the number of depositors and the amount of intermediated savings, factors which in turn increase the growth rate and may help countries to take off from a poverty trap. Taxation finances financial infrastructures and decreases the private productivity of capital. Growth and welfare maximising levels of financial infrastructures are computed.
Keywords: Endogenous growth, imperfect competition, financial infrastructures
JEL Classification: O16, E62, G21
Suggested Citation: Suggested Citation
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