Working Paper Series no. 80: Can Financial Infrastructures Foster Economic Development ?

Abstract

In this paper, financial infrastructures increase the efficiency of the banking sector: they decrease the market power (due to horizontal differentiation) of the financial intermediaries, lower the cost of capital, increase the number of depositors and the amount of intermediated savings, factors which in turn increase the growth rate and may help countries to take off from a poverty trap. Taxation finances financial infrastructures and decreases the private productivity of capital. Growth and welfare maximising levels of financial infrastructures are computed.

Bruno Amable and Jean-Bernard Chatelain
January 2001

Classification JEL : O16, E62, G21

Keywords : Endogenous growth, imperfect competition, financial infrastructures