Stock markets, growth, and policy

Ross Levine ()

No 484, Policy Research Working Paper Series from The World Bank

Abstract: This paper shows how stock markets can accelerate growth and how policy can affect that growth either directly (by altering investment incentives) or indirectly (by changing the incentives underlying the creation of financial contracts). To help explain the role of financial markets in economic development, an endogenous growth model in which a stock market emerges to allocate risk was constructed. The model explores how the stock market alters investment incentives in ways that change steady-state growth rates. This paper demonstrates that stock markets can accelerate growth by: (a) facilitating the ability to trade ownership of firms without disrupting the productive processes occurring within firms; and (b) allowing agents to diversify portfolios across firms.

Keywords: Economic Theory&Research; Environmental Economics&Policies; Banks&Banking Reform; Financial Intermediation; Economic Growth (search for similar items in EconPapers)
Date: 1990-08-31
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Working Paper: Stock markets, growth, and policy (1990)
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