Financial Development, Growth, and the Distribution of Income

• DOI: 10.21034/wp.446
• Publication Date: 2019-08-30T18:03:24Z
• Authors: Jeremy Greenwood; Boyan Jovanovic
• Keywords: Intermediation; Capital Accumulation; Capital (architecture); Rate of return; Endogenous growth theory

A paradigm is presented where both the extent of financial intermediation and rate economic growth are endogenously determined. Financial promotes because it allows a higher return to be earned on capital, in turn provides means implement costly structures. Thus, inextricably linked accord with Goldsmith-McKinnon-Shaw view development. The model also generates development cycle reminiscent Kuznets hypothesis. In particular, transition from primitive slow-growing economy developed fast-growing one, nation passes through stage distribution wealth across rich poor widens.