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Two papers authored by Professor Lin Yifu accepted by international economics journals


Recently, two papers authored by Professor Lin Yifu were accepted by international economics journals. Among them, the paper entitled "Convergence, Financial Development, and Policy Analysis” co-authored with Professor Miao Jianjun of Boston University and Professor Wang Pengfei of Hong Kong University of Science and Technology was accepted by the leading international economics journal Economic Theory.


We study the relationship among inflation, economic growth, and financial development in a Schumpeterian overlapping-generations model with credit constraints. In the baseline case money is super-neutral. When the financial development exceeds some critical level, the economy catches up and then converges to the growth rate of the world technology frontier. Otherwise, the economy converges to a poverty trap with a growth rate lower than the frontier and with inflation decreasing with the level of financial development. We then study efficient allocation and identify the sources of inefficiency in a market equilibrium. We show that a particular combination of monetary and fiscal policies can make a market equilibrium attain the efficient allocation.


Professor Lin Yifu published another paper entitled “Financial Structure, Industrial Structure, and Economic Development: A New Structural Economic Perspective” in the international economics journal, The Manchester School , co-authored with Professor Gong Qiang of Zhongnan University of Economics and Law and Professor Zhang Yilin of Sun Yat-sen University.


We investigate the evolving relative importance of banks and equity markets during different stages of economic development. Unlike previous studies, we propose a demand‐side theory on the appropriate financial structure for an economy. We show that a bank‐based financial structure is more appropriate than a market‐based structure for developing countries, and that for developed countries, a market‐based financial structure is more appropriate than a bank‐based structure. This is due to the industrial structures of countries and the different advantages of banks and equity markets for serving the real economy. Our findings are consistent with recent empirical facts and provide new perspectives to understand the structural change of a country’s financial system.


Contributor: Jiang Yangtian