Secondary Capital Markets, Long-Run Growth, and the Term Structure of Asset Yields

An endogenous growth model is presented in which production uses a vector of capital inputs. Technologies for creating capital of different types vary by gestation period and productivity. Ownership of gestating capital must be rolled over in secondary capital markets in which transactions are costly. We study how reductions in transactions costs affect the equilibrium growth rate, the rate of return on saving, the volume of activity in secondary capital markets, and the term structure of asset yields. We give conditions under which reductions in transactions costs result in higher or lower growth rates.