Financial intermediation under information asymmetry: implications for capital market efficiency in selected developing countries

Considers the methods whereby income is likely to grow in developing countries, given imperfect information and the need for credit for investment. Looks at the link between financial intermediation and economic growth for nine countries between 1969 and 1992, using a financial intermediation model, comparing demand‐following and supply‐leading financial linkages. Finds that financial structure variables explain income growth better than investment variables in five countries ; demand‐following intermediation fitted two countries better; and the supply‐leading channel fitted three countries better. Concludes that financial intermediaries mobilize domestic resources for economic growth in several countries.