Finance and Development Is Schumpeter’s analysis

Transcript:Finance and Development Is Schumpeter’s analysis:
Finance and Development Is Schumpeter’s analysis still relevant? 1.1 Rajan and Zingales use important elements of Schumpeter’s theoretical framework meanwhile re-evaluate the importance of Schumpeter’s contribution the paper is divided in two parts analysis of RZ elements of Schumpeter’s theory that they overlook 2.1 Thesis: The presence of a well-developed financial system is a necessary condition for the achievement of high economic growth rates A) Theory to explain the link between financial structure and economic development B) Definition and measurement of financial structure’s development i.e. distinction between developed and undeveloped financial structure using the concept of innovation underlined by the Schumpeter’s analysis i.e. innovation is based upon a change Part One: Rajan and Zingales analysis A) Link: financial structure and economic development Approach: financial structure is significant if we abandoned the hypothesis of perfect market → markets are characterized by imperfect information which impede their functioning generally, in financial markets a given amount of money is exchanged between debtor and creditor for the promise of receiving a greater amount of money in the future the difficulties the creditors encounters in obtaining relevant information may make the exchange impossible the level of development of a financial structure is measured in relation to its capacity to produce service that reduce the effects of imperfect information and diminish the transaction costs the financial sector is therefore important because the financial intermediaries are responsible for and may influence resource allocation main tool for innovation A) Link: financial structure and economic development B) Development: determined by two endogenous factors 1.system of production that comprises the innovation introduced by entrepreneur (realisation of new product, new production method, opening of new markets) 2.creation of money by banks through credit RZ - the level of development of a financial structure can be measured in relation to the capacity to finance innovation « the right measure for financial development would capture the ease with which any entrepreneur or company with a project can obtain finance and the confidence with which investors anticipate an adequate return » 2.2 Two necessary condition to develop a financial system A) Respect & Safeguard a legal system to enforce property rights; facilitate private contracting and protects legal rights B) The presence of institution that make it possible to take the risk of financing innovations limited liability stock company capable to overcome the problem of adverse selection and moral hazard (caused by the imperfect information)