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Market-Mobilized Capital

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  • Azfar, Omar
  • Matheson, Thornton

Abstract

Theory suggests that capital is more likely to be efficiently allocated via market mechanisms, such as bank lending and stock issuance, than via non-market allocation. Consequently, we conjecture that increased market allocation of capital will enhance economic growth. We also posit that good collateral and corporate law will increase the allocation of capital via debt and equity markets, respectively. Using measures of statutory law as instruments for market-mobilized capital, to control for its endogeneity in a cross-country growth regression, we demonstrate a clear causal link between financial market development and economic performance. Copyright 2003 by Kluwer Academic Publishers

Suggested Citation

  • Azfar, Omar & Matheson, Thornton, 2003. "Market-Mobilized Capital," Public Choice, Springer, vol. 117(3-4), pages 357-372, December.
    • Handle: RePEc:kap:pubcho:v:117:y:2003:i:3-4:p:357-72
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    Cited by:

    1. Gani, Azmat & Clemes, Michael D., 2016. "Does the strength of the legal systems matter for trade in insurance and financial services?," Research in International Business and Finance, Elsevier, vol. 36(C), pages 511-519.

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