The evolution of debt and equity markets in economic development |
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| Authors: | John H. Boyd Bruce D. Smith |
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| Affiliation: | (1) Finance Department, University of Minnesota, Minneapolis, MN 55455, USA (e-mail: jboyd@csom.umn.edu), US;(2) Department of Economics, University of Texas at Austin, Austin, TX 78712, USA (e-mail: bsmith@eco.utexas.edu), US;(3) Research Department, Federal Reserve Bank of Minneapolis, Minneapolis, MN 55480, USA, US |
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| Abstract: | Summary. 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. Received: December 30, 1997; revised version: May 26, 1998 |
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| Keywords: | and Phrases: Finance Growth Development. |
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