Finance and Economic Growth in a Dynamic Game



We investigate how the relaxation of financial constraints affects economic growth in a dynamic game of the tragedy of the commons by introducing an imperfect financial market into Tornell and Velasco’s (J Polit Econ 100(6):1208–1231, 1992) model. It is shown that whereas the relaxation of financial constraints enhances economic growth if agents have access only to a common asset whose property rights are not secure, the relaxation of financial constraints reduces economic growth if agents can have access not only to a common asset but also to a private asset whose property rights are secure.


Dynamic game Interest groups Property rights Financial market imperfections Economic growth 

JEL Classification

C73 D92 O43 


  1. 1.
    Aghion P, Banerjee A (2005) Volatility and growth. Oxford University Press, New YorkCrossRefGoogle Scholar
  2. 2.
    Aghion P, Banerjee A, Piketty T (1999) Dualism and macroeconomic volatility. Quart J Econ 114(4):1359–1397CrossRefMATHGoogle Scholar
  3. 3.
    Aghion P, Howitt P, Mayer-Foulkes D (2005) The effect of financial development on convergence: theory and evidence. Quart J Econ 120(1):173–222Google Scholar
  4. 4.
    Arcand JL, Berkes E, Panizza U (2015) Too much finance? J Econ Growth 20(2):105–148CrossRefGoogle Scholar
  5. 5.
    Dockner EJ, Plank M, Nishimura K (1999) Markov perfect equilibria for a class of capital accumulation games. Ann Oper Res 89:215–230MathSciNetCrossRefMATHGoogle Scholar
  6. 6.
    Dockner EJ, Nishimura K (2001) Characterization of equilibrium strategies in a class of difference games. J Differ Equ Appl 7(6):915–926MathSciNetCrossRefMATHGoogle Scholar
  7. 7.
    Dockner EJ, Nishimura K (2004) Strategic growth. J Differ Equ Appl 10(5):515–527MathSciNetCrossRefMATHGoogle Scholar
  8. 8.
    Dockner EJ, Nishimura K (2005) Capital accumulation games with a non-concave production function. J Econ Behav Organ 57(4):408–420CrossRefGoogle Scholar
  9. 9.
    Greenwood J, Jovanovic B (1990) Financial development, growth, and the distribution of income. J Polit Econ 98(5):1076–1107CrossRefGoogle Scholar
  10. 10.
    Kunieda T, Shibata A (2016) Asset bubbles, economic growth, and a self-fulfilling financial crisis. J Monet Econ 82:70–84CrossRefGoogle Scholar
  11. 11.
    Kunieda T, Nishimura K (2018) Finance and economic growth in a dynamic game. Working paper. Kwansei Gakuin UniversityGoogle Scholar
  12. 12.
    Lamoreaux NR (1994) Insider lending. Banks, personal connections, and economic development in industrial New England. Cambridge University Press, New YorkCrossRefGoogle Scholar
  13. 13.
    Lane PR, Tornell A (1996) Power, growth, and the voracity effect. J Econ Growth 1(2):213–241CrossRefMATHGoogle Scholar
  14. 14.
    Levine R (2005) Finance and growth: theory and evidence. In: Aghion P, Durlauf SN (eds) Handbook of economic growth, vol 1A. Elsevier, Amsterdam, pp 865–934Google Scholar
  15. 15.
    Levine R, Loayza N, Beck T (2000) Financial intermediation and growth: causality and causes. J Monet Econ 46(1):31–77CrossRefGoogle Scholar
  16. 16.
    Loayza NV, Rancière R (2006) Financial development, financial fragility, and growth. J Money Credit Bank 38(4):1051–1076CrossRefGoogle Scholar
  17. 17.
    Long NV, Sorger G (2006) Insecure property rights and growth: the role of appropriation costs, wealth effects, and heterogeneity. Econ Theor 28(3):513–529MathSciNetCrossRefMATHGoogle Scholar
  18. 18.
    Saci K, Giorgioni G, Holden K (2009) Does financial development affect growth? Appl Econ 41(13):1701–1707CrossRefGoogle Scholar
  19. 19.
    Sorger G (2005) A dynamic common property resource problem with amenity value and extraction costs. Int J Econ Theory 1(1):3–19CrossRefGoogle Scholar
  20. 20.
    Tornell A, Velasco A (1992) The tragedy of the commons and economic growth: Why does capital flow from poor to rich countries? J Polit Econ 100(6):1208–1231CrossRefGoogle Scholar
  21. 21.
    Tornell A, Lane PR (1999) The voracity effect. Am Econ Rev 89(1):22–46CrossRefMATHGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.School of EconomicsKwansei Gakuin UniversityNishinomiyaJapan
  2. 2.Research Institute for Economics and Business AdministrationKobe UniversityNadaku, KobeJapan
  3. 3.Research Institute of EconomyTrade and Industry (RIETI)TokyoJapan

Personalised recommendations