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The evolution of debt and equity markets in economic development

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Bruce D. Smith & John H. Boyd, 1998. "The evolution of debt and equity markets in economic development," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 12(3), pages 519-560.
  • Handle: RePEc:spr:joecth:v:12:y:1998:i:3:p:519-560
    Note: Received: December 30, 1997; revised version: May 26, 1998
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    Keywords

    Finance · Growth · Development.;

    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, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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