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Interaction between economic and financial development

Deidda, Luca Gabriele (1999) Interaction between economic and financial development. Cagliari, CRENoS. p. 38 (Working Papers CRENoS, 1999, 13). Working Paper.

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This paper presents a possible explanation of the interactive nature of the relationship between economic and financial development based on absorption of resources by the financial sector, and constant returns to physical capital accumulation in the production sector. Financial intermediaries operating in a credit market characterised by monopolistic competition emerge along with the process of economic development. This could initially have a detrimental effect on growth, so that the economy might be trapped in a low development region. If not, subsequent economic development stimulates competition among financial intermediaries which results in more efficient financial transactions, and therefore higher growth. While higher efficiency is always associated with higher growth, the laissez faire economy can still be characterised by sub-optimal levels of financial development.

Item Type:Working Paper
ID Code:62
Uncontrolled Keywords:Economic financial development, physical capital accumulation, financial intermediaries, laissez faire economy
Subjects:Area 13 - Scienze economiche e statistiche > SECS-P/01 Economia politica
Divisions:002 Altri enti e centri di ricerca del Nord Sardegna > CRENoS-Centro Ricerche Economiche Nord Sud, Università di Cagliari e Università di Sassari
001 Università di Sassari > 01 Dipartimenti > Economia, impresa, regolamentazione
Publisher Policy:Depositato per gentile concessione del CRENoS
Additional Information:Poi pubblicato nel 2006 in: Journal of Monetary Economics, Vol. 53 (2), pp. 233-248.
Deposited On:18 Aug 2009 10:01

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