Threshold Effect and Financial Intermediation in Economic Development

Laurent Augier and Wahyoe Soedarmono

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyzes the theoretical finance-growth nexus. Using the Neoclassical growth framework, we raise a new issue where our finance-growth nexus has multiple stationary states with threshold effect. Threshold effect prevents the economy to reach long-run steady state equilibrium of capital and hence financial economists in developing countries should be aware of such an impediment. We show that the development of banking sector should be more supported than financial market, since banking sector is better than financial market in order to reduce threshold effect and ensure the existence and uniqueness of a higher long-run steady state equilibrium of capital stock.

Keywords: Threshold Effect; Financial Intermediation; Economic Growth; Developing Countries (search for similar items in EconPapers)
JEL-codes: C61 C62 O16 (search for similar items in EconPapers)
Date: 2010-02-05
New Economics Papers: this item is included in nep-fdg and nep-fmk
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Related works:
Working Paper: Threshold Effect and Financial Intermediation in Economic Development (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:20494

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