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Why and when financial instruments are created: a learning story

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Abstract

The relationship between financial development and growth has been the subject of intense scrutiny. Economists debate whether finance causes growth [Hicks (1969), Schumpeter (1934)], or whether it is growth that triggers the development of financial markets [Robinson (1952)]. This paper proposes the view that financial development arises as a response to the contractual needs of emerging technologies. Exogenous technological progress generates a derived demand for new financial instruments that facilitate the adoption of the new technologies; those instruments may help investors share risk or overcome private information issues, for example.

Suggested Citation

  • Fernandes, Ana, 2006. "Why and when financial instruments are created: a learning story," Journal of Financial Transformation, Capco Institute, vol. 18, pages 24-28.
  • Handle: RePEc:ris:jofitr:0926
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    Keywords

    Technology adoption; financial innovation; learning;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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