Threshold Effect and Financial Intermediation in Economic Development

Laurent Augier () and Wahyoe Soedarmono
Additional contact information
Laurent Augier: Université de Poitiers-CRIEF and Université de La Rochelle

Economics Bulletin, 2011, vol. 31, issue 1, 342-357

Abstract: This paper reformulates the finance-growth nexus in the case of developing countries. Using the Neoclassical growth framework, our contribution is threefold. First, we show that entrepreneurship is a growth-enhancing factor in both financial intermediary equilibrium and financial market equilibrium. Second, we show that agent's saving is one of the determinants of the optimal proportion of long-term investment and hence, we characterize the role of bank as financial intermediary. Third, our model is characterized by the existence of multiple steady states equilibrium with threshold effect that impedes the economy to reach a long-run higher steady state equilibrium. Furthermore, we show that financial intermediary is better than financial market, in order to reduce threshold effect and to ensure the long-run steady state equilibrium of capital stock.

Keywords: Threshold Effect; Financial Intermediary; Economic Growth; Developing Countries (search for similar items in EconPapers)
JEL-codes: G0 O1 (search for similar items in EconPapers)
Date: 2011-01-17
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I1-P33.pdf (application/pdf)

Related works:
Working Paper: Threshold Effect and Financial Intermediation in Economic Development (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-10-00619

Access Statistics for this article

More articles in Economics Bulletin from AccessEcon
Bibliographic data for series maintained by John P. Conley ().