EconPapers    
Economics at your fingertips  
 

Financial Innovation and Endogenous Growth

Luc Laeven (), Ross Levine () and Stelios Michalopoulos ()

No 7465, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We model technological and financial innovation as reflecting the decisions of profit maximizing agents and explore the implications for economic growth. We start with a Schumpeterian endogenous growth model where entrepreneurs earn monopoly profits by inventing better goods and financiers arise to screen entrepreneurs. A novel feature of the model is that financiers also engage in the costly, risky, and potentially profitable process of innovation: Financiers can invent more effective processes for screening entrepreneurs. Every existing screening process, however, becomes less effective as technology advances. Consequently, technological innovation and, thus, economic growth stop unless financiers continually innovate. Historical observations and empirical evidence are more consistent with this dynamic model of financial innovation and endogenous growth than with existing models of financial development and growth.

Keywords: Corporate Finance; Economic Growth; Entrepreneurship; Financial Institutions; Invention; Technological change (search for similar items in EconPapers)
JEL-codes: G0 O31 O4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-dge, nep-ent and nep-fdg
Date: 2009-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11) Track citations by RSS feed

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7465 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Financial innovation and endogenous growth (2015) Downloads
Working Paper: Financial Innovation and Endogenous Growth (2011) Downloads
Working Paper: Financial Innovation and Endogenous Growth (2010) Downloads
Working Paper: Financial Innovation and Endogenous Growth (2009) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:7465

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=7465

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2019-04-22
Handle: RePEc:cpr:ceprdp:7465