Banking, Credit Market Imperfection and Economic Growth

Mahmoud Nabi and Taoufik Rajhi

No 540, Working Papers from Economic Research Forum

Abstract: We develop a new model that links capital market imperfection to banking emergence and economic growth. It is shown that the banking system emerges endogenously after a first stage of slow economic growth. Interestingly, economic growth increases after the emergence of banking but remains under its potential level. This is due to a credit rationing brake which decreases progressively as the economy develops. Another finding is that a reduction of credit market imperfection reduces the credit rationing stage.

Pages: 24
Date: 2010-01-09, Revised 2010-01-09
New Economics Papers: this item is included in nep-ban and nep-fdg
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