Financial structure and economic development

Ross Levine ()

No 381, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: An important challenge to economists is to explain how financial contracts and institutions affect economic growth while simultaneously explaining how economic development elicits the creation and modification of an economy's financial structure. This paper addresses one side of this inherently two-sided issue. The paper shows how risk, transactions costs, and economies of scale in information gathering and resource coordination create incentives for the emergence of commonly observed financial institutions and contracts and how the resulting financial structure influences the steady state growth rate of per capita output. Policy can affect growth directly by altering investment incentives and indirectly by changing the incentives underlying the creation of financial structures.

Keywords: Economic development; Financial institutions (search for similar items in EconPapers)
Date: 1990
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Related works:
Working Paper: Financial structures and economic development (1992)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:381

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