Market-Mobilized Capital

Omar Azfar and Thornton Matheson

Public Choice, 2003, vol. 117, issue 3-4, pages 357-72

Abstract: Theory suggests that capital is more likely to be efficiently allocated via market mechanisms, such as bank lending and stock issuance, than via non-market allocation. Consequently, we conjecture that increased market allocation of capital will enhance economic growth. We also posit that good collateral and corporate law will increase the allocation of capital via debt and equity markets, respectively. Using measures of statutory law as instruments for market-mobilized capital, to control for its endogeneity in a cross-country growth regression, we demonstrate a clear causal link between financial market development and economic performance. Copyright 2003 by Kluwer Academic Publishers

Date: 2003
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