Differences in growth with international capital markets and financial innovation

Fernando Tallo

International Advances in Economic Research, 2001, vol. 7, issue 3, 327-336

Abstract: This paper presents a model in which technological progress affects the productivity of the financial sector. When technological progress moves quicky, the financial intermediation costs are low, which increases the incentives to invest in new technology. This feedback process involves two types of long-run equilibria: one with low financial intermediation costs and high growth, and the other with high financial intermediation costs and low growth. These divergences in growth rates among countries hold even in the presence of international capital markets with free capital mobility, a very unusual result in the endogenous growth literature. Copyright International Atlantic Economic Society 2001

Date: 2001
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DOI: 10.1007/BF02295401

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