Industrial Diversification, Financial Development and Productive Investments
AbstractThis paper analyzes, from a theoretical perspective, the role of the financial system to promote growth and macroeconomic stability. It also endogenously explains the performance of the financial systems as a consequence of industrial (or sectoral) diversification. In the model, the productive sector carries out R&D activities and finances its activities through the financial system. While vertical innovation fosters economic growth, horizontal innovation creates new industrial sectors and therefore generates an increase of industrial diversification. A larger industrial diversification deepens the financial system because it improves its possibilities of financing the productive sector. A more diversified economy (better financially developed as a result) will have higher growth rates and will be less volatile. There is a role for the government to subsidize innovation, especially horizontal innovation.
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Bibliographic InfoPaper provided by Central Bank of Argentina, Economic Research Department in its series BCRA Working Paper Series with number 200726.
Length: 26 pages
Date of creation: Dec 2007
Date of revision:
economic growth; financial development; imperfect information; industrial diversification; horizontal innovation; vertical innovation;
Other versions of this item:
- Alfredo Schclarek, 2007. "Industrial Diversification, Financial Development and Productive Investments," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, Central Bank of Argentina, Economic Research Department, vol. 1(48), pages 145-177, July - Se.
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
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