Financial Intermediation in a Model of Growth through Creative Destruction

Maria Morales

UFAE and IAE Working Papers from Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC)

Abstract: This paper presents an endogenous growth model in which the research activity is financed by intermediaries that are able to reduce the incidence of researcher's moral hazard. It is shown that financial activity is growth promoting because it increases research productivity. It is also found that a subsidy to the financial sector may have larger growth effects than a direct subsidy to research. Moreover, due to the presence of moral hazard, increasing the subsidy rate to R\&D may reduce the growth rate. I show that there exists a negative relation between the financing of innovation and the process of capital accumulation. Concerning welfare, the presence of two externalities of opposite sign steaming from financial activity may cause that the no-tax equilibrium provides an inefficient level of financial services. Thus, policies oriented to balance the effects of the two externalities will be welfare improving.

Keywords: Financial Intermediation; Endogenous Growth (search for similar items in EconPapers)
JEL-codes: G20 O38 O41 (search for similar items in EconPapers)
Date: 2001-05-17
New Economics Papers: this item is included in nep-ent and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Journal Article: FINANCIAL INTERMEDIATION IN A MODEL OF GROWTH THROUGH CREATIVE DESTRUCTION (2003)
Working Paper: Financial Intermediation in a Model of Growth Through Creative Destruction (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:aub:autbar:487.01

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