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Book: Financial institutions and the wealth of nations: tales of development (discussion paper)

TitleFinancial institutions and the wealth of nations: tales of development (discussion paper)
Authors
KeywordsDevelopment
Transition
Financial institutions
R&D
Issue Date2004
PublisherSuntory and Toyota International Centre for Economics and Related Disciplines
Citation
Tong, 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.
Persistent Identifierhttp://hdl.handle.net/10722/153480
ISBN

 

DC FieldValueLanguage
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.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-
dc.identifier.isbn0966-4246-
dc.identifier.urihttp://hdl.handle.net/10722/153480-
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.languageeng-
dc.publisherSuntory and Toyota International Centre for Economics and Related Disciplines-
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)en_US
dc.typeBooken_US
dc.identifier.emailXu, C: cgxu@hku.hk-
dc.description.naturepostprint-
dc.identifier.spage1-
dc.identifier.epage53-
dc.publisher.placeUK-

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