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Book: Financial institutions and the wealth of nations: tales of development (discussion paper)
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TitleFinancial institutions and the wealth of nations: tales of development (discussion paper)
 
AuthorsTong, J
Xu, C
 
KeywordsDevelopment
Transition
Financial institutions
R&D
 
Issue Date2004
 
PublisherSuntory and Toyota International Centre for Economics and Related Disciplines
 
CitationTong, J & Xu, C. Financial institutions and the wealth of nations: tales of development (discussion paper). UK: Suntory and Toyota International Centre for Economics and Related Disciplines. 2004 [How to Cite?]
 
AbstractInteractions between economic development and financial development are studied by looking at the roles of financial institutions in selecting R&D projects (including for both imitation and innovation). Financial development is regarded as the evolution of the financing regimes. The effectiveness of R&D selection mechanisms depends on the institutions and the development stages of an economy. At higher development stages a financing regime with ex post selection capacity is more effective for innovation. However, this regime requires more decentralized decision-making, which in turn depend on contract enforcement. A financing regime with more centralized decision-making is less affected by contract enforcement but has no ex post selection capacity. Depending on the legal institutions, economies in equilibrium choose regimes that lead to different steady-state development levels. The financing regime of an economy also affects development dynamics through a ‘convergence effect’ and a ‘growth inertia effect’. A backward economy with a financing regime with centralized decision-making may catch up rapidly when the convergence effect and the growth inertia effect are in the same direction. However, this regime leads to large development cycles at later development stages. Empirical implications are discussed.
 
ISBN0966-4246
 
DC FieldValue
dc.contributor.authorTong, J
 
dc.contributor.authorXu, C
 
dc.date.accessioned2012-08-06T06:49:45Z
 
dc.date.available2012-08-06T06:49:45Z
 
dc.date.issued2004
 
dc.description.abstractInteractions between economic development and financial development are studied by looking at the roles of financial institutions in selecting R&D projects (including for both imitation and innovation). Financial development is regarded as the evolution of the financing regimes. The effectiveness of R&D selection mechanisms depends on the institutions and the development stages of an economy. At higher development stages a financing regime with ex post selection capacity is more effective for innovation. However, this regime requires more decentralized decision-making, which in turn depend on contract enforcement. A financing regime with more centralized decision-making is less affected by contract enforcement but has no ex post selection capacity. Depending on the legal institutions, economies in equilibrium choose regimes that lead to different steady-state development levels. The financing regime of an economy also affects development dynamics through a ‘convergence effect’ and a ‘growth inertia effect’. A backward economy with a financing regime with centralized decision-making may catch up rapidly when the convergence effect and the growth inertia effect are in the same direction. However, this regime leads to large development cycles at later development stages. Empirical implications are discussed.
 
dc.description.naturepostprint
 
dc.identifier.citationTong, J & Xu, C. Financial institutions and the wealth of nations: tales of development (discussion paper). UK: Suntory and Toyota International Centre for Economics and Related Disciplines. 2004 [How to Cite?]
 
dc.identifier.epage53
 
dc.identifier.isbn0966-4246
 
dc.identifier.spage1
 
dc.identifier.urihttp://hdl.handle.net/10722/153480
 
dc.languageeng
 
dc.publisherSuntory and Toyota International Centre for Economics and Related Disciplines
 
dc.publisher.placeUK
 
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License
 
dc.subjectDevelopment
 
dc.subjectTransition
 
dc.subjectFinancial institutions
 
dc.subjectR&D
 
dc.titleFinancial institutions and the wealth of nations: tales of development (discussion paper)
 
dc.typeBook
 
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<description.abstract>Interactions between economic development and financial development are studied by looking at the roles of financial institutions in selecting R&amp;D projects (including for both imitation and innovation). Financial development is regarded as the evolution of the financing regimes. The effectiveness of R&amp;D selection mechanisms depends on the institutions and the development stages of an economy. At higher development stages a financing regime with ex post selection capacity is more effective for innovation. However, this regime requires more decentralized decision-making, which in turn depend on contract enforcement. A financing regime with more centralized decision-making is less affected by contract enforcement but has no ex post selection capacity. Depending on the legal institutions, economies in equilibrium choose regimes that lead to different steady-state development levels. The financing regime of an economy also affects development dynamics through a &#8216;convergence effect&#8217; and a &#8216;growth inertia effect&#8217;. A backward economy with a financing regime with centralized decision-making may catch up rapidly when the convergence effect and the growth inertia effect are in the same direction. However, this regime leads to large development cycles at later development stages. Empirical implications are discussed.</description.abstract>
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