FINANCIAL DEVELOPMENT AND THE SOURCES OF GROWTH AND CONVERGENCE

Oleg Badunenko and Diego Romero‐Ávila
Authors registered in the RePEc Author Service: Diego Romero-Ávila ()

International Economic Review, 2013, vol. 54, issue 2, 629-663

Abstract: We extend the deterministic, nonparametric production frontier framework by incorporating financial development. Our analysis convincingly shows that (1) failure to account for financial development overstates the role of physical capital accumulation in labor productivity growth, (2) most of this overstated contribution stems from the efficiency‐enhancing role of well‐functioning financial institutions, (3) international polarization is solely driven by efficiency changes, and (4) increased distributional dispersion of productivity is primarily driven by technological change. Model’s extensions to account for the growth effect of changes in the institutional environment only add to the argument about the overstated role of physical capital.

Date: 2013
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Citations: View citations in EconPapers (43)

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