Hostname: page-component-cd9895bd7-p9bg8 Total loading time: 0 Render date: 2024-12-26T06:31:55.951Z Has data issue: false hasContentIssue false
  • English
  • Français

DYNAMICS OF A SIMPLE ENDOGENOUS GROWTH MODEL WITH FINANCIAL INTERMEDIATION

Published online by Cambridge University Press:  07 August 2019

Dominika Byrska Open the ORCID record for Dominika Byrska [Opens in a new window] ,
Adam Krawiec Open the ORCID record for Adam Krawiec [Opens in a new window]  and
Marek Szydłowski Open the ORCID record for Marek Szydłowski [Opens in a new window]
Dominika Byrska
Affiliation:
Jagiellonian University
Adam Krawiec*
Affiliation:
Jagiellonian University
Marek Szydłowski
Affiliation:
Jagiellonian University
*
Address correspondence to: Adam Krawiec, Institute of Economics, Finance and Management, Jagiellonian University, Lojasiewicza 4, 30-348 Krakow, Poland. e-mail: adam.krawiec@uj.edu.pl. Phone. +48 12 6645763.
Get access Rights & Permissions [Opens in a new window]

Abstract

We study an impact of the financial intermediation on economic growth. We assume the simple model of the economic growth in the form of an autonomous dynamical system with a financial sector represented by banks and real sector represented by households and firms. We assume that financial intermediation services are described by financial intermediation technology which is a function depending on the share of labor employed by banks. Investments realized by firms depend not only on savings accumulated by banks but also on financial intermediation technology. We obtain a three-dimensional dynamical system and analyze the existence of a saddle equilibrium in the growth process associated with financial intermediation. Using mathematical methods of dynamical systems, we analyze growth paths, and we study the stationary states of the system and their stability. We found that equilibrium is reached only by trajectories located on two submanifolds. The resulting analysis provides an insight into the saddle solution with a stable incoming separatrix lying on one of the invariant manifolds.

Keywords

Endogenous GrowthFinancial IntermediationDynamical SystemsSaddle Equilibrium
Type
Articles
Information
Macroeconomic Dynamics , Volume 25 , Issue 5 , July 2021 , pp. 1288 - 1302
Copyright
© Cambridge University Press 2019

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

The authors acknowledge the support of the Narodowe Centrum Nauki (National Science Centre Poland) project no. 2014/15/B/HS4/04264.

References

REFERENCES

Aghion, P., Howitt, P. and Mayer-Foulkes, D. (2005) The effect of financial development on convergence: Theory and evidence. Quarterly Journal Economics 120, 173–222.Google Scholar
Arcand, J. L., Berkes, E. and Panizza, U. (2015) Too much finance? Journal of Economic Growth 20, 105–148.CrossRefGoogle Scholar
Beck, T., Levine, R. and Loayza, N. (2000) Finance and the sources of growth. Journal of Financial Economics 58, 261–300.CrossRefGoogle Scholar
Bencivenga, V. and Smith, B. (1991) Financial intermediation and endogenous growth. Review of Economic Studies 58, 195–209.CrossRefGoogle Scholar
Benhabib, J. and Spiegel, M. (2000) The role of financial development in growth and investment. Journal of Economic Growth 5, 341–360.CrossRefGoogle Scholar
Bucci, A. and Marsiglio, S. (2019) Financial development and economic growth: long run equilibrium and transitional dynamics. Scottish Journal of Political Economy. doi:10.1111/sjpe.12182.CrossRefGoogle Scholar
Bucci, A., Marsiglio, S. and Prettner, C. (2019) On the (Nonmonotonic) Relation Between Economic Growth and Finance. Macroeconomic Dynamics. doi:10.1017/S1365100518000305.CrossRefGoogle Scholar
Demetriades, P. and Hussein, K. (1996) Does financial development cause economic growth? Time series evidence from 16 countries. Journal of Development Economics 51, 387–411.CrossRefGoogle Scholar
Eggoh, J. C. and Villieu, P. (2014) A simple endogenous growth model of financial intermediation with multiplicity and indeterminacy. Economic Modelling 38, 357–366.CrossRefGoogle Scholar
Greenwood, J. and Smith, B. D. (1997) Financial markets in development, and the development of financial markets. Journal of Economic Dynamics and Control 21, 145–181.CrossRefGoogle Scholar
Kuznetsov, Y. A. (2004) Elements of Applied Bifurcation Theory, 3rd ed. New York: Springer.CrossRefGoogle Scholar
Law, S. H. and Singh, N. (2014) Does too much finance harm economic growth? Journal of Banking & Finance 41, 36–44.CrossRefGoogle Scholar
Levine, R. (1997) Financial development and growth. Views and agenda. Journal of Economic Literature 35, 688–726.Google Scholar
Levine, R., Loayza, N. and Beck, T. (2000) Financial intermediation and growth: causality and causes. Journal of Monetary Economics 46, 31–77.CrossRefGoogle Scholar
Levine, R. (2001) International Financial Liberalization and Economic Growth, Review of International Economics 9, 688–702.CrossRefGoogle Scholar
Levine, R. (2005) Finance and growth theory and evidence. In: Aghion, P. and Durlauf, S. (eds.), Handbook of Economic Growth. Amsterdam: Elsevier.Google Scholar
McKinnon, R. I. (1973) Money and Capital in Economic Development. Washington, DC: Brookings Institution.Google Scholar
Pagano, M. (1993) Financial market and growth: An overview. European Economic Review 37, 613–622.CrossRefGoogle Scholar
Perko, L., (2001) Differential Equations and Dynamical Systems. New York: Springer.CrossRefGoogle Scholar
Ram, R. (1999) Financial development and economic growth: additional evidence. Journal of Development Studies 35, 164–174.CrossRefGoogle Scholar
Rioja, F. and Valev, N. (2004) Finance and the sources of growth at various stages of economic development. Economic Inquiry 42, 127–140.CrossRefGoogle Scholar
Shaw, E. (1973) Financial Deepening in Economic Development. New York: Oxford University Press.Google Scholar