Financial Development, Growth, and the Distribution of Income

44 Pages Posted: 19 Sep 2007 Last revised: 21 Mar 2021

See all articles by Jeremy Greenwood

Jeremy Greenwood

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Boyan Jovanovic

New York University - Department of Economics

Date Written: December 1989

Abstract

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

Suggested Citation

Greenwood, Jeremy and Jovanovic, Boyan, Financial Development, Growth, and the Distribution of Income (December 1989). NBER Working Paper No. w3189, Available at SSRN: https://ssrn.com/abstract=467637

Jeremy Greenwood (Contact Author)

University of Pennsylvania - Department of Economics ( email )

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Boyan Jovanovic

New York University - Department of Economics ( email )

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