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.