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Knowledge, Technology Adoption and Financial Innovation

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  • Ana Fernandes

Abstract

Why are new financial instruments created? This paper proposes the view that financial development arises as a response to the contractual needs of emerging technologies. Exogenous technological progress generates a demand for new financial instruments in order to share risk or overcome private information, for example. A model of the dynamics of technology adoption and the evolution of financial instruments that support such adoption is presented. Early adoption may be required for financial markets to learn the technology; once learned, financial innovation boosts adoption further. Financial learning emerges as a source of technological diffusion. The analysis identifies a causality link from technology to growth which is nonetheless consistent with empirical findings of a positive effect of current financial development on future growth

Suggested Citation

  • Ana Fernandes, 2005. "Knowledge, Technology Adoption and Financial Innovation," Diskussionsschriften dp0513, Universitaet Bern, Departement Volkswirtschaft.
    • Handle: RePEc:ube:dpvwib:dp0513
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    References listed on IDEAS

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    Cited by:

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    3. Javier Diaz-Gimenez & Josep Pijoan-Mas, 2006. "Flat Tax Reforms in the U.S.: a Boon for the Income Poor," Computing in Economics and Finance 2006 400, Society for Computational Economics.
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    6. Juan-José Ganuza & Gerard Llobet & Beatriz Domínguez, 2009. "R& D in the Pharmaceutical Industry: A World of Small Innovations," Management Science, INFORMS, vol. 55(4), pages 539-551, April.

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    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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