Banking, Credit Market Imperfection and Growth

Nabi, Mahmoud Sami and Rajhi, Taoufik (2005): Banking, Credit Market Imperfection and Growth.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: endogenous growth, banking emergence, credit rationing, credit market imperfection
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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