Finance Matters

Pedro S. Amaral () and Erwan Quintin ()

Macroeconomics from EconWPA

Abstract: We present a model in which the importance of financial intermediation for development can be measured. We generate financial differences by varying the degree to which contracts can be enforced. Economies where enforcement is poor employ less capital and less efficient technologies. Calibrated simulations reveal that both effects are important. Yet, accounting for all the observed dispersion in output requires a higher capital share or a lower elasticity of substitution between capital and labor than usually assumed. We find that the effects of changes in those technological parameters on output are markedly larger when financial frictions are present. Finance, that is, matters.

JEL-codes: E (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cmp, nep-dge and nep-mac
Date: 2005-02-01
Note: Type of Document - pdf; pages: 37
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Working Paper: Finance matters (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpma:0502007

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