Quantifying the Impact of Financial Development on Economic Development

Abstract

How important is financial development for economic development? A costly state verification model of financial intermediation is presented to address this question. The model is calibrated to match facts about the U.S. economy, such as intermediation spreads and the firm-size distribution for the years 1974 and 2004. It is then used to study the international data, using cross-country interest-rate spreads and per-capita GDP. The analysis suggests a country like Uganda could increase its output by 140 to 180% if it could adopt the world's best practice in the financial sector. Still, this amounts to only 34 to 40% of the gap between Uganda's potential and actual output.

Economic Performance in Post-Dayton Bosnia and Herzegovina: The Role of Institutional Quality and Financial Deepening

“…it measures the quality and quantity of investment. This index isolates credit provided by the government and other development banks and this can also be seen as a shortfall [3,13,14,16,22,23,34,36]. The second is broad money which Trade openness is employed in measuring the volume of trade in the economy.…”

Long-Term Finance and Investment with Frictional Asset Markets

“…A moment commonly used to compare intermediation costs across countries is the bank's net interest margin, which measures the difference between interest income and payments to lenders using bank balance-sheet data from Bankscope (the data is available at The World Bank Global Financial Development Database). For example, Greenwood et al (2013) attribute all of the spreads to the intermediation costs related to acquiring information about borrowers. Through the lens of this paper, however, the net interest margin can also reflect the illiquidity cost that banks will charge at origination of the loan, taking into account that they might need to later sell the loan in a frictional secondary market.…”

Financial Frictions and the Rule of Law

“…Our paper relates to the broad misallocation literature but more closely to the misalloca-tion literature emphasizing either financial frictions or crime. The macro literature emphasizing financial frictions include Jeong and Townsend (2007), Amaral and Quintin (2010), , Buera and Shin (2013), Caselli and Gennaioli (2013), Greenwood et al (2013), Midrigan and Xu (2014), Moll (2014), among many others. Fewer studies examine the macro effects of crime, an exception being Ranasinghe (2017) who studies the effects of extortion in Eastern Europe.…”