Banks (but not stock markets) promote economic growth by facilitating relationship-specific investment between buyers and suppliers of intermediate goods. Combined insights from literature on signaling role of banks and on relationship-specific investment motivate this economic channel: A...

An influential strand of literature starting with the Nobel Prize winning work of Oliver Williamson (1971, 1975) argues that a rational agent underinvests in relationship-specific assets due to the possibility of an opportunistic behaviour on the part of her contractual partner. We first combine...

Existing literature sees opportunistic behaviour of contractual partners as the main reason why rational agents underinvest in relationship-specific assets. We look beyond this well-know holdup problem and argue that financial vulnerability and short-term planning horizon can also lead to such...

Up to a point, banks and markets both foster economic growth. Beyond that limit, expanded bank lending or market-based financing no longer adds to real growth. But when it comes to moderating business cycle fluctuations, banks and markets differ considerably in their effects. In normal...

Existing literature sees opportunistic behaviour of contractual partners as the main reason why rational agents underinvest in relationship-specific assets. We look beyond this well-know holdup problem and argue that financial vulnerability and short-term planning horizon can also lead to such...

Venture capital (VC) and growth are examined both empirically and theoretically. Empirically, VC-backed startups have higher early growth rates and initial patent quality than non-VC-backed ones. VC backing increases a startup's likelihood of reaching the right tails of the firm size and...

This paper analyzes within a two-region endogenous growth model how different types of public policies affect the equilibrium spatial distribution of economic activity. Integration is modeled as a continuum and enables firms to access the public input of the respective other region. Given a...

This paper reassesses the role of financial intermediation in inducing the European financial crisis of 2008. Our empirical investigation sheds light on the causal effects of excessive household leverage on economic structural distortions, beyond the already established links between credit...

There is a large and growing literature on the relationship between financial development and economic growth. It suggests a positive causal link running from finance to growth. We consider, in broad terms, the existing historical evidence on this connection. We demonstrate that constraints on...