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Financial Innovation and Endogenous Growth

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

No 15356, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Is financial innovation necessary for sustaining economic growth? To address this question, we build a Schumpeterian model in which entrepreneurs earn profits by inventing better goods and profit-maximizing financiers arise to screen entrepreneurs. The model has two novel features. First, financiers engage in the costly but potentially profitable process of innovation: they can invent better methods for screening entrepreneurs. Second, every screening process becomes less effective as technology advances. The model predicts that technological innovation and economic growth eventually stop unless financiers innovate. Empirical evidence is consistent with this dynamic, synergistic model of financial and technological innovation.

JEL-codes: G0 G3 O1 O31 O4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-dge, nep-fdg, nep-ino and nep-mic
Date: 2009-09
Note: CF EFG IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9) Track citations by RSS feed

Published as Laeven, Luc & Levine, Ross & Michalopoulos, Stelios, 2015. "Financial innovation and endogenous growth," Journal of Financial Intermediation, Elsevier, vol. 24(1), pages 1-24.

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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
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