Threshold Effect and Financial Intermediation in Economic Development

Soedarmono, Wahyoe and Augier, Laurent (2009): Threshold Effect and Financial Intermediation in Economic Development.

Abstract

This paper analyzes the importance of financial intermediation on economic growth. Using the Neoclassical growth framework, we raise a new issue where our model has multiple stationary states with threshold effect. We further confirm that financial intermediation is better than self-financing system in order to ensure the existence and uniqueness of long-run steady state equilibrium of capital stock, as well as to decrease threshold level. The presence of threshold effect is an important finding in studying the finance-growth nexus, since it prevents the economy to raise sufficient initial capital.

• Item Type: MPRA Paper
• Language: English
• Keywords: Threshold Effect, Financial Intermediation, Economic Growth, Developing Countries
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C62 - Existence and Stability Conditions of Equilibrium

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