Journal ArticleDOI
Financing Development: The Role of Information Costs (Revised August 2009)
TLDR
In this paper, a costly state verification framework is embedded into the standard growth model to address how technological progress in financial intermediation affects the economy, and the efficacy of monitoring depends upon the amount of resources invested in the activity.Abstract:
To address how technological progress in financial intermediation affects the economy, a costly-state verification framework is embedded into the standard growth model. The framework has two novel features. First, firms differ in the risk/return combinations that they offer. Second, the efficacy of monitoring depends upon the amount of resources invested in the activity. A financial theory of firm size results. Undeserving firms are over financed, deserving ones under funded. Technological advance in intermediation leads to more capital accumulation and a redirection of funds away from unproductive firms toward productive ones. Quantitative analysis suggests that finance is important for growth.read more
Citations
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Journal Article
Financial development and economic growth
TL;DR: Šonje et al. as mentioned in this paper used a sample of 35 countries for the period between 1860 and 1963 to show the relationship between income and financial depth measured by the ratio between bank's assets and GDP.
References
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Journal ArticleDOI
Financial Intermediation and Delegated Monitoring
TL;DR: In this paper, the authors developed a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders, and presented a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary.
Posted Content
Agency Costs, Net Worth, And Business Fluctuations
Ben S. Bernanke,Mark Gertler +1 more
TL;DR: The authors constructs a simple neoclassical model of intrinsic business cycle dynamics in which borrowers' balance sheet positions play an important role and shows that the agency costs of undertaking physical investments are inversely related to the entrepreneur's/borrower's net worth.
Journal ArticleDOI
Financial Intermediation and Endogenous Growth
TL;DR: In this paper, an endogenous growth model with multiple assets is developed, and the effects of introducing financial intermediation into this environment are considered, and conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital, causing intermediation to be growth promoting.
Posted Content
A New Database on Financial Development and Structure
TL;DR: Beck, Demirguc-Kunt, and Levine as mentioned in this paper introduced a new database of indicators of financial development and structure across countries and over time, which unifies a range of indicators that measure the size, activity, and efficiency of financial intermediaries and markets.