Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/259933 
Year of Publication: 
2006
Series/Report no.: 
Working Paper No. 2006:19
Publisher: 
Lund University, School of Economics and Management, Department of Economics, Lund
Abstract: 
This paper theoretically studies the role of the financial system in promoting macroeconomic stability and growth. It also explains endogenously the development of the financial system as part of the growth process. The productive sector engages in R\&D activities, and finances its activities through access to the financial system. While vertical innovation spurs economic growth, horizontal innovation creates new industry sectors, and thus enhances industry diversification. Higher industry diversification deepens the financial system by improving its ability to finance the productive sector. Economies that are more diversified, and thus more financially developed, have higher growth rates and are less volatile. There is a role for the government to subsidize innovation, especially horizontal innovation.
Subjects: 
vertical innovation
horizontal innovation
industry diversification
financial development
economic growth
imperfect information
JEL: 
E22
E32
E44
O16
O30
O41
Document Type: 
Working Paper

Files in This Item:
File
Size
372.51 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.