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Quantifying the Impact of Financial Development on Economic Development

Jeremy Greenwood, Juan Sanchez and Cheng Wang

No 17, Economie d'Avant Garde Research Reports from Economie d'Avant Garde

Abstract: How important is financial development for economic development? A costly state verification model of financial intermediation is presented to address this question. The model is calibrated to match facts about the U.S. economy, such as intermediation spreads and the firm-size distribution for the years 1974 and 2004. It is then used to study the international data, using cross-country interest-rate spreads and per-capita GDP. The analysis suggests a country like Uganda could increase its output by 116% if it could adopt the world's best practice in the financial sector. Still, this amounts to only 29% of the gap between Uganda's potential and actual output.

Keywords: costly state verification; economic development; financial intermediation; firm-size distribution; interest-rate spreads; cross-country output differences; cross-country differences in financial sector productivity; cross-country TFP differences (search for similar items in EconPapers)
JEL-codes: E13 O11 O16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-lam and nep-mac
Date: 2010-02
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Related works:
Journal Article: Quantifying the Impact of Financial Development on Economic Development (2013) Downloads
Working Paper: Quantifying the Impact of Financial Development on Economic Development (2012) Downloads
Working Paper: Quantifying the Impact of Financial Development on Economic Development (2011) Downloads
Working Paper: Quantifying the impact of financial development on economic development (2010) Downloads
Working Paper: Quantifying the impact of financial development on economic development (2010) Downloads
Working Paper: Quantifying the Impact of Financial Development on Economic Development (2010) Downloads
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