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Financial regimes, capital structure, and growth

  • Arnold, Lutz
  • Walz, Uwe

We develop a growth model with endogenous technological progress in which the financial sector plays an explicit role. Thereby we discuss the role of different financial regimes in the growth process. We contrast a bank-dominated financial system with a market-dominated system. In the first one a financial intermediary (a bank) is able to solve informational problems, however, at a cost. There is learning by doing in the banking sector. We ask for circumstances under which one of the two regimes emerges. We show that history matters and that the emergence of the low-growth regime is feasible. Furthermore, in a second step we allow for an endogenous capital structure choice of firms and analyze the evolution of the financial system and capital structure over time.

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Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 16 (2000)
Issue (Month): 3 (September)
Pages: 491-508

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Handle: RePEc:eee:poleco:v:16:y:2000:i:3:p:491-508
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  1. Levine, Ross & Zervos, Sara, 1996. "Stock markets, banks, and economic growth," Policy Research Working Paper Series 1690, The World Bank.
  2. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
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