Endogenous Growth and Intermediation in an `Archipelago' Economy

A general equilibrium model based on the parable of an economy of many islands shows that market imperfections in the intermediation activity affect economic growth and possibly prevent takeoff into sustained growth. The inhabitants of different islands accumulate heterogeneous assets and transporta...

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Bibliographic Details
Published inThe Economic journal (London) Vol. 104; no. 423; pp. 462 - 473
Main Author Zilibotti, Fabrizio
Format Journal Article
LanguageEnglish
Published Cambridge Blackwell Journals 01.03.1994
Cambridge University Press
Oxford University Press
Subjects
Archipelagos
Business structures
Consumer economics
Economic costs
Economic development
Economic growth
Economic growth models
Economic modeling
Economic models
Fertilizers
Impacts
Neoclassical economics
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Summary:A general equilibrium model based on the parable of an economy of many islands shows that market imperfections in the intermediation activity affect economic growth and possibly prevent takeoff into sustained growth. The inhabitants of different islands accumulate heterogeneous assets and transportation-type intermediation allows for better allocation of the productive resources. The development process is accompanied by a reduction in intermediation costs, which induces firms to adopt more efficient techniques and sustains economic growth. A laissez-faire economy suffers from two distortions: the existence of market imperfections and a `thick market' externality.
ISSN:0013-0133
1468-0297
DOI:10.2307/2234765