Crony Capitalism and Financial System Stability

Joseph Haslag and Rowena Pecchenino

Economic Inquiry, 2005, vol. 43, issue 1, 24-38

Abstract: Prior to the Asian financial crisis, the cozy relationships between corporations, governments, and banks were seen as a potent force for economic growth and development. In this article we examine the institution of crony capitalism. Under conditions in which the Second Welfare Theorem does not hold, there is a role for government. Some governmental institutions do encourage more risky, high-payoff entrepreneurial activities. Our aim is to examine crony capitalism as a potential source of government activity that enhances economic productivity. In addition, we explore the conditions under which the government activity can instigate a financial crisis. (JEL G28, G21, E32) Copyright 2005, Oxford University Press.

JEL-codes: E32 G21 G28 (search for similar items in EconPapers)
Date: 2005
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