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Technological Revolutions and Financial Innovations

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  • Yuan K. Chou

Abstract

In this paper, we study the symbiotic relationship between financial innovation and technological innovation. In particular, we construct a theoretical macroeconomic growth model that correspond to the thesis presented in Perez (2002) that all the technological revolutions and their associated development surges since the Industrial Revolution have been both beneficiaries and stimulants of financial development. We explain the microeconomic foundations of the model and present its steady state solution, emphasizing how the growth rate of the economy depends on parameters characterising the R&D and financial sectors. We then analyze the impact of specific types of financial innovations that predominate in each phase of the technological cycle on the optimum allocation of resources in the economy.

Suggested Citation

  • Yuan K. Chou, 2004. "Technological Revolutions and Financial Innovations," Department of Economics - Working Papers Series 901, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:901
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    File URL: http://www.economics.unimelb.edu.au/downloads/wpapers-04/901.pdf
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    References listed on IDEAS

    as
    1. Tufano, Peter, 1989. "Financial innovation and first-mover advantages," Journal of Financial Economics, Elsevier, vol. 25(2), pages 213-240, December.
    2. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    3. David Cass, 1965. "Optimum Growth in an Aggregative Model of Capital Accumulation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 32(3), pages 233-240.
    4. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    5. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
    6. Carlota Perez, 2002. "Technological Revolutions and Financial Capital," Books, Edward Elgar Publishing, number 2640, March.
    7. Helios HERRERA & Enrique SCHROTH, 2001. "The Welfare Implications of Non-Patentable Financial Innovations," FAME Research Paper Series rp82, International Center for Financial Asset Management and Engineering.
    8. Enrico Santarelli, 1995. "Finance and Technological Change," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-37503-1, July.
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    Keywords

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    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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