Niveau: Supérieur
Financial Innovations and Technological Innovations as Twin Engines of Economic Growth Yuan K. Chou? and Martin S. Chin University of Melbourne January 9, 2004 Abstract This paper demonstrates the complementarities between financial and real innovations by developing a parsimonious model of the financial sector that is integrable into a growth model with endogenous technological progress. The financial sector comprises innovators who design new financial products and in- termediaries which transform individual savings into funds for productive phys- ical capital investment by firms. In addition, financial intermediaries also act as venture capitalists in financing risky R&D activities with potentially high pay- o?s. The rate of financial innovation is determined by labor resources devoted to the sector as well as by spillovers from existing financial products. Ultimately, financial innovations lead to long-run growth solely through the technological innovation channel. The intermediary role of the financial sector produces tem- porary growth e?ects on the transition path to the steady state. We also analyze the dynamic response of the model economy to financial liberalization and other government policy changes. ?Address: Department of Economics, University of Melbourne, VIC 3010, Australia. Phone: +61 3 8344 5287; Fax: +61 3 8344 6899; Email: 1
- real
- real technological innovators
- costs - transaction costs
- into investible
- obvious real-world
- financial sector
- capital accumulation
- growth
- existing theoretical