LIMITED ENFORCEMENT, FINANCIAL INTERMEDIATION, AND ECONOMIC DEVELOPMENT: A QUANTITATIVE ASSESSMENT

Pedro Amaral and Erwan Quintin ()

International Economic Review, 2010, vol. 51, issue 3, 785-811

Abstract: We present a model of economic development where the importance of financial differences caused by limited enforcement can be measured. Economies where enforcement is poor direct less capital to the production sector and employ less efficient technologies. Calibrated simulations reveal that the resulting effect on output is large. Furthermore, the model correctly predicts that the average scale of production should rise with the quality of enforcement. Finally, we find that the importance of limited enforcement rises with the importance of capital in production. Copyright (2010) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 2010
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