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Financial Markets, Industry Dynamics and Growth

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  • Maurizio Iacopetta
  • Raoul Minetti
  • Pietro F Peretto

Abstract

This article introduces corporate governance frictions into a growth model with endogenous market structure. Managers engage in corporate resource diversion and empire building. Shareholders discipline managers with incentive compensation contracts. A reform that mitigates corporate governance frictions boosts firms’ entry and, for a given market structure, has an ambiguous impact on incumbents’ return to product improvement. However, as the market structure adjusts, becoming more diffuse, incumbents invest less in product improvement. Calibrating the model to U.S. data, we find that a reform of the kind recently enacted in several advanced economies can lead to a welfare loss.

Suggested Citation

  • Maurizio Iacopetta & Raoul Minetti & Pietro F Peretto, 2019. "Financial Markets, Industry Dynamics and Growth," The Economic Journal, Royal Economic Society, vol. 129(621), pages 2192-2215.
    • Handle: RePEc:oup:econjl:v:129:y:2019:i:621:p:2192-2215.
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    Cited by:

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    3. Iacopetta, Maurizio & Peretto, Pietro F., 2021. "Corporate governance and industrialization," European Economic Review, Elsevier, vol. 135(C).
    4. Zakaria Babutsidze & Maurizio Iacopetta, 2016. "Innovation, growth and financial markets," Journal of Evolutionary Economics, Springer, vol. 26(1), pages 1-24, March.
    5. Chu, Angus C. & Peretto, Pietro & Xu, Rongxin, 2023. "Export-led takeoff in a Schumpeterian economy," Journal of International Economics, Elsevier, vol. 145(C).
    6. Maurizio Iacopetta & Raoul Minetti & Pierluigi Murro, 2020. "Growing Through Spinoffs," SciencePo Working papers Main hal-03389197, HAL.
    7. Maurizio Iacopetta & Raoul Minetti & Pierluigi Murro, 2020. "Growing through Spinoffs. Corporate Governance, Entry, and Innovation," Documents de Travail de l'OFCE 2020-13, Observatoire Francais des Conjonctures Economiques (OFCE).
    8. Zhou, Yuwen & Tian, Lixin & Yang, Xiaoguang, 2023. "Schumpeterian endogenous growth model under green innovation and its enculturation effect," Energy Economics, Elsevier, vol. 127(PB).
    9. Angus C. Chu & Yuichi Furukawa & Sushanta Mallick & Pietro Peretto & Xilin Wang, 2021. "Dynamic effects of patent policy on innovation and inequality in a Schumpeterian economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(4), pages 1429-1465, June.
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    11. Chu, Angus C. & Peretto, Pietro F. & Wang, Xilin, 2022. "Agricultural revolution and industrialization," Journal of Development Economics, Elsevier, vol. 158(C).
    12. He, Qichun & Wang, Xilin, 2020. "Money, Human Capital and Endogenous Market Structure in a Schumpeterian Economy," MPRA Paper 104609, University Library of Munich, Germany.
    13. Ken Tabata, 2021. "Redistributive Policy and R&D-based Growth," Discussion Paper Series 227, School of Economics, Kwansei Gakuin University.
    14. Chu, Angus C. & Peretto, Pietro F., 2023. "Innovation and inequality from stagnation to growth," European Economic Review, Elsevier, vol. 160(C).
    15. Chu, Angus C. & Furukawa, Yuichi & Wang, Xilin, 2022. "Rent-seeking government and endogenous takeoff in a Schumpeterian economy," Journal of Macroeconomics, Elsevier, vol. 72(C).
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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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