Bruce D. Smith () (Department of Economics, University of Texas at Austin, Austin, TX 78712, USA) John H. Boyd () (Finance Department, University of Minnesota, Minneapolis, MN 55455, USA)
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As noted by Gurley and Shaw, there is a typical pattern of economic development in which the evolution of the financial system is an essential aspect of the growth process. We focus on one component of this evolution: the increasing importance of equity markets as an economy grows. We develop a growth model where capital accumulation is financed externally through a combination of debt and equity. We illustrate why equity market activity might grow - often very rapidly - as an economy develops. We also illustrate why access to equity markets may not be needed in the early stages of economic development.
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Article provided by Springer in its journal Economic Theory.
Find related papers by JEL classification: E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General G20 - Financial Economics - - Financial Institutions and Services - - - General O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
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