Can financial infrastructures foster economic development?

In this paper, financial infrastructures increase the efficiency of the ban king sector: they decrease the market power (due to horizontal differentiat ion) of the financial intermediaries, lower the cost of capital, increase t he number of depositors and the amount of intermediated savings, factors wh ich in turn increase the growth rate and may help countries to take off fro m a poverty trap. Taxation finances financial infrastructures and decreases the private productivity of capital. Growth and welfare maximising levels of financial infrastructures are computed. (C) 2001 Elsevier Science B.V. A ll, rights reserved.