Government, Financial Markets, and Economic Development

42 Pages Posted: 28 May 2004 Last revised: 15 Jul 2010

See all articles by Joseph E. Stiglitz

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: April 1991

Abstract

Ideological debates on the role of government in development have focused on two contrasting prescriptions: one calling for large scale government interventions to solve problems of massive market failures, the other for the unfettering of markets, with the dynamic forces of capitalism naturally leading to growth and prosperity. This paper is part of an exploration of a middle road, focusing in particular on the role of government in financial markets. After explaining the importance of, and the limitations on, capital markets, particularly in allocating scarce investment resources, the results are used as a basis of a critique of the two 'extreme' approaches. Recognizing the limitations of government intervention as well as of free markets, the 'new view' of capital markets provides new insights into s variety of policy issues, which are addressed in the final section of the paper.

Suggested Citation

Stiglitz, Joseph E., Government, Financial Markets, and Economic Development (April 1991). NBER Working Paper No. w3669. Available at SSRN: https://ssrn.com/abstract=247716

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