Financial Innovation and Endogenous Growth
Stelios Michalopoulos (),
Luc Laeven () and
Ross Levine ()
No 15356, NBER Working Papers from National Bureau of Economic Research, Inc
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)
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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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Journal Article: Financial innovation and endogenous growth (2015)
Working Paper: Financial Innovation and Endogenous Growth (2011)
Working Paper: Financial Innovation and Endogenous Growth (2010)
Working Paper: Financial Innovation and Endogenous Growth (2009)
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