Ira Gang
Rutgers University
Department of Economics
E-mail: gang@economics.rutgers.edu
Item Number: [J17]
Title: Financial Development and the Price of Services
Abstract: This paper explores the links between financial development
and the low relative price of services in less developed countries (LDCs).
The empirical phenomenon of services priced lower in LDCs than in developed
countries is now quite thoroughly documented in the data gathered by Kravis,
Heston, and Summers (KHS) in their important work with the United Nations
International Comparison Project (1982a). Following McKinnon
(1973) and Shaw (1973), recent work emphasizes the importance of financial
development in successful economic growth [see Jung (1986)]. We use
a simple three sector model with non-traded goods to trace causal connections
between financial policies and the structure of relative prices. Using
data on relative prices from the International Comparison Project study, we
show that the extent of "financial repression" is a significant predictor
of the spread of relative service goods prices across nations at differing
stages of development as well as among LDCs alone.
Reference: Davied Feldman and Ira N. Gang, Financial Development
and the Price of Services, Economic Development and Cultural Change,
38 (1990) 341-352
.
Co-Author Information:
David Feldman
College of William and Mary
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