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Banking, contract enforcement and economic growth

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  • Mahmoud Nabi
  • Taoufik Rajhi

Abstract

We develop a new model that links credit contracts enforcement to banking emergence and economic growth. It is shown that the development process is composed of three stages. In the first stage, the economy develops slowly due to a primitive technology of capital accumulation. The second stage marks the emergence of banking and the substitution of the primitive technology by a more productive modern technology that enhances growth. Finally in the third stage, our model enables the realization of a dynamic capital accumulation scenario without credit rationing. Another finding is that a reduction in the enforcement cost accelerates the emergence of the banking system. Copyright Springer-Verlag 2013

Suggested Citation

  • Mahmoud Nabi & Taoufik Rajhi, 2013. "Banking, contract enforcement and economic growth," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 60(1), pages 83-100, March.
    • Handle: RePEc:spr:inrvec:v:60:y:2013:i:1:p:83-100
    DOI: 10.1007/s12232-012-0161-1
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    More about this item

    Keywords

    Endogenous growth; Banking emergence; Credit rationing; Credit contracts enforcement; G21; O16; O41;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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