Transitional Growth with Increasing Inequality and Financial Deepening

84 Pages Posted: 31 Jan 2006

See all articles by Robert M. Townsend

Robert M. Townsend

MIT - Department of Economics

Kenichi Ueda

University of Tokyo - Faculty of Economics

Date Written: August 2001

Abstract

We study models that display growth with financial deepening and increasing inequality along the way to perpetual steady state growth. A benchmark model is essentially a complete markets model but with transaction costs of financial intermediation. New proofs are required and thus provided for stochastic dynamic programming for the case of unbounded return functions and perpetual growth with a non-convex transaction technology. We calibrate the model and report quantitative predictions for Thailand during 1976-96. We find a discrepancy between the model and the data, suspect barriers to financial deepening as a cause, and evaluate the associated welfare loss.

Keywords: Transitional growth, inequality, financial deepening, transaction costs

JEL Classification: G21, G28, O16, O41

Suggested Citation

Townsend, Robert M. and Ueda, Kenichi, Transitional Growth with Increasing Inequality and Financial Deepening (August 2001). IMF Working Paper No. 01/108, Available at SSRN: https://ssrn.com/abstract=879835

Robert M. Townsend (Contact Author)

MIT - Department of Economics ( email )

Bldg. E52-252c
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Cambridge, MA 02142
United States
617-452-3722 (Phone)
617-253-1330 (Fax)

Kenichi Ueda

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

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