نقش کارایی بازار سرمایه در رشد بلند مدت: اکتشاف کمی

A computable neoclassical model with financial intermediation is used first to explain the falling Euler equation tax wedge of S. Korea and Taiwan between 1966 and 2006 and then to explore the hypothesis that more efficient financial intermediation enhances growth. The analysis reveals that improved efficiency reduces the tax wedge of 1966–1980 by more than 58%. Moreover an improvement in financial efficiency generally results in a higher steady state output by raising the percentage of household savings intermediated and not by raising saving rates. Accordingly, financial efficiency improves welfare and positively contributes to long-term growth.

The business cycle accounting “wedge” methodology suggests that the major drivers of business cycles and growth are different. Chari et al., 2002, Chari et al., 2007, Cole and Ohanian, 1999, Cole and Ohanian, 2002 and Ohanian, 2010 point out that the specification error of the Euler equation, the Euler equation tax wedge, is not important in accounting for the US business cycles. However, this wedge is important in accounting for the earlier growth of developing countries like S. Korea and Taiwan (Lu, 2012). Their wedge values significantly deviated from zero and have declined during their growth episodes.1 This pattern of decline differs significantly from the relatively flat pattern of the US (See the upper panel of Fig. 1) and implies that there are significant distortions in the equilibrium investment decisions of agents operating in otherwise competitive capital markets, especially in their earlier stages of economic development. Changes in these distortions, which the falling tax wedges reveal, play a role in accounting for the long-term growth in these countries. Full-size image (32 K) Fig. 1. Euler equation tax wedges and interest rate spreads for S. Korea, Taiwan, and the US: Both indicators show that the financial distortion decreases in S. Korea and Taiwan and that of the US remains roughly constant. Figure options We interpret the decline of the Euler equation tax wedge over time as reflecting the efficiency improvement of financial intermediation during growth. Accordingly, we build a model with financial intermediation to quantitatively examine how improvement in the efficiency of financial intermediation contributes to the wedge change and the long-term growth of S. Korea and Taiwan. The model results support our interpretation and suggest that the efficiency improvement enhances growth by reducing the “losses” attributable to the process of financial intermediation rather than by increasing saving rates. This particular interpretation is motivated by the high correlation between the wedge value and the commonly used measurement for financial efficiency—the interest rate spread between lending and deposit rates, the spread.2 For S. Korea and Taiwan, both the wedge values and spreads have fallen (see the lower panel of Fig. 1) and the correlation coefficients are high (S. Korea: 0.90; Taiwan: 0.75). Furthermore, this particular focus reflects the well-known (e.g., Schumpeter, 1934 and McKinnon, 1973, among others) yet disputed view in the literature on finance and growth that financial development positively influences growth. Much evidence from cross-country studies supports such a view (e.g., King and Levine, 1993a, King and Levine, 1993b, Beck et al., 2000 and Levine et al., 2000), whereas some evidence suggests the contrary view that this role is not always significant—as summarized in Deidda (2006). Our quantitative result supports the view that financial development enhances growth, as the efficiency improvement in financial intermediation is a particular form of financial development. Our study differs from the existing theoretical and empirical work on finance and growth. We consider the firm’s financing structure and focus on bank operational efficiency and growth, and thus differ from the previous theoretical models on this topic. For example, earlier works by Bencivenga and Smith, 1991, Bencivenga and Smith, 1998, Greenwood and Jovanovic, 1990 and Greenwood and Smith, 1997 focus on financial intermediation’s role in the sharing of risk and in allocating capital to more productive but illiquid assets. More recent work has focused on its role in boosting R&D (e.g., Morales, 2003 and Aghion et al., 2005) and in monitoring projects (e.g., Greenwood et al., 2010 and Greenwood et al., 2012). Although these theoretical papers support the view that financial development has a positive impact on long-term growth, Deidda (2006) further justifies the existence of financial intermediaries and finds that the growth effect is ambiguous when an economy transitions from financial autarky to financial intermediation. An extensive literature review on finance and growth can be found in Pagano, 1993, Levine, 1997 and Demirguc-Kunt and Levine, 2008. Moreover, our study differs from the existing empirical work in that we quantitatively address how much a model with financial intermediaries can explain the relationship between the mitigation of financial distortion and the long-term economic growth rate. Most empirical work applies econometric techniques to identify the role of financial development in growth. We instead quantitatively explore to what extent efficiency improvement of financial intermediation can explain the reduction of the Euler equation tax wedge and show to what extent it affects growth based on the growth experience of S. Korea and Taiwan. The model used in this study adds a banking sector into a Ramsey–Cass–Koopmans type of deterministic, discrete time growth model with firms owning assets. We also allow firms to “foster capital”, i.e., choose a combination of firm-owned assets and loans. This capital is then used in production. For simplicity, we focus on a simple function of financial intermediaries (i.e., banks)—the intermediation of funds between lender and borrower. We characterize the bank’s intermediation by a reduced-form matching function between deposits and loans. Banks charge an interest rate spread between lending and deposit rates to finance their operating costs. Accordingly, when bank efficiency is greater, which is exogenously determined, interest rate spread shrinks, fewer resources are lost when funneling household savings to firms’ loans (i.e., more funds are intermediated), and more capital is accumulated, thus resulting in more output.3 Using our model, we arrive at four conclusions. We first show that about 58% of S. Korea’s and 87% of Taiwan’s Euler equation tax wedge (before 1980) can be explained by improvement in bank efficiency. Second, we show that improvement in bank efficiency positively contributes to output growth in general. For S. Korea, improvement in bank efficiency raises steady state output by 5.17% and for Taiwan by 4.70%. Therefore, the findings quantitatively support the view that the efficiency improvement of financial intermediation generally has a positive impact on economic growth in the long run. This is the main result of the paper. Third, increased efficiency positively contributes to output growth through a mechanism that more efficiently intermediates resources, but does not necessarily adjust saving rates. We find that such efficiency improvement results in a fall of household savings and firms’ savings (i.e., firms rely more on loans than self-owned assets). Consequently, the national saving rate falls. Finally, we also find that bank efficiency improvement is welfare enhancing because consumption increases when bank efficiency improves. The remainder of this paper is organized as follows: Section 2 describes the setup of a neoclassical model with financial intermediation. Section 3 describes the data and the parameters chosen. Section 4 shows how our model explains the falling Euler equation tax wedge. Section 5 examines the hypothesis that bank efficiency improvement raises output. We also show how bank efficiency improvement affects other macroeconomic variables. Finally, Section 6 offers concluding remarks.

We have introduced a banking sector into a prototypical Ramsey–Cass–Koopmans model to account for the observed evolution of the Euler equation tax wedge of S. Korea and Taiwan from 1966 to 2006. Our work shows that the model incorporating the efficiency changes of financial intermediation accounts for the reduction of the Euler equation tax wedge, especially that of 1966–1980. Moreover, we have also used the model to quantitatively evaluate the hypothesis that financial development—in the form of bank efficiency improvement—positively contributes to economic growth. The model results suggest that this efficiency improvement positively contributes to per capita output growth. Although the size of the contribution changes quantitatively when assuming different degrees of substitutability between firm-owned assets and loans, when considering misallocation issues or the possibility of firm entry and exit, we show that qualitatively, the positive contribution of bank efficiency to output growth holds in general. We also find that the efficiency improvement positively contributes to growth by raising the proportion of household savings being transformed into loans rather than by raising saving rates. Finally, we find that bank efficiency improvement is welfare enhancing. The main finding that bank efficiency improvement contributes to growth coincides with the well-known empirical evidence in the development literature regarding the positive impact of financial development on growth. This paper also supports the view that capital market efficiency positively affects growth through the efficient mobilization of funds from savers to firms rather than by altering the saving rate. A natural next step is to study the elasticity of substitution between firm-owned assets and loans from a macroeconomic perspective since the degree to which bank efficiency affects growth is sensitive to this parameter. Once the elasticity of substitution for the firms’ financing is estimated, the importance of financial development to growth can be accurately assessed. Then, we can provide better policy recommendations to the developing world regarding financial development. Finally, our work suggests that one can build a more sophisticated model that takes into account more functions of banks, such as the project monitoring function shown in Greenwood et al., 2010 and Greenwood et al., 2012, and endogenizes the evolution of TFP to address the issue of finance and growth. We leave all these interesting topics for future research.