Banking, contract enforcement and economic growth

Mahmoud Nabi and Taoufik Rajhi

International Review of Economics, 2013, vol. 60, issue 1, 83-100

Abstract: We develop a new model that links credit contracts enforcement to banking emergence and economic growth. It is shown that the development process is composed of three stages. In the first stage, the economy develops slowly due to a primitive technology of capital accumulation. The second stage marks the emergence of banking and the substitution of the primitive technology by a more productive modern technology that enhances growth. Finally in the third stage, our model enables the realization of a dynamic capital accumulation scenario without credit rationing. Another finding is that a reduction in the enforcement cost accelerates the emergence of the banking system. Copyright Springer-Verlag 2013

Keywords: Endogenous growth; Banking emergence; Credit rationing; Credit contracts enforcement; G21; O16; O41 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s12232-012-0161-1

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