Information disclosure, banking development and knowledge-driven growth |
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Authors: | Diego Romero-Á vila |
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Affiliation: | Universidad Pablo de Olavide, Departamento de Economía, Métodos Cuantitativos e Historia Económica, Carretera de Utrera, Km 1, 41013 Seville, Spain |
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Abstract: | In this study we develop a knowledge-driven growth model which explicitly models the banking sector as monopolistically competitive. The main mechanism through which financial intermediaries affect the real economy is through the evaluation and provision of liquidity to R&D projects. We distinguish two scenarios. In the regime with information disclosure, banks are able to use the stock of information obtained by the banking industry from evaluating R&D projects. This information externality brings about efficiency improvements, thereby leading to a positive entry of banks, more bank-funded research and in turn positive economic growth. By contrast, in the regime with no information disclosure, it is not profitable for new banks to enter the industry. This implies that no more potential R&D projects can be evaluated and hence financed, thus leading the economy to a zero-growth equilibrium. |
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Keywords: | G28 O11 O31 |
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