ABSTRACT
A recent literature has focused on the effects of financial development on growth (Bencivenga and Smith, 1991; Greenwood and Jovanovic, 1990 and Saint-Paul, 1992, inter alia). 2 Aside from potential increases in the savings rate, the existence of financial intermediation allows a more efficient use of resources by an improved allocation of credit compared to a situation of individual financial autarchy. For instance, the existence of credit markets permits a diversification of idiosyncratic risk, stemming either from liquidity preference or technological specificities. Moreover, financial intermediaries have an information-gathering aspect which should promote an efficient credit allocation. However, the influence of financial factors on growth are not limited to such aspects. Bencivenga and Smith (1993) have focused on the importance of financial market imperfections on growth. Faced with an adverse selection problem, lenders' optimal reaction may lead them to ration credit. This puts a limit on the attainable growth rate of the economy. In the model of Bencivenga and Smith, policies designed to reduce credit rationing by guaranteeing some loans, promote growth, so that there is room for some public intervention. Asymmetric information between borrower and lender leads also to incentive problems in financial relationships and may result in credit rationing.
