Financial distortions and economic growth: Empirical evidence

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2 Citations (Scopus)


Conventional wisdom suggests a negative relation between financial distortions and economic growth. This paper incorporates the financial premium, a good proxy for the degree of restrictions on financial transactions, into a standard AK-type endogenous growth model. The analytical results suggest that such a relationship does not exist. Economic growth is insulated by the financial premium, contrasting with previously held beliefs. Agents' patience and the attitude of relative risk aversion are noteworthy in explaining the effects of external distortions on economic growth. Our findings may apply to economies with parallel exchange markets.

Original languageEnglish
Pages (from-to)56-66
Number of pages11
JournalEmerging Markets Finance and Trade
Issue number3
Publication statusPublished - 2009 May 1

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics, Econometrics and Finance(all)

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