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The Effects of Financial Sector Development on Innovation as an Engine of Sustained Growth
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- Authors
- Issue Date
- 2007-01
- Citation
- Seoul Journal of Economics, Vol.20 No.1, pp. 129-164
- Keywords
- The finance-led growth ; Innovation ; Simultaneity
- Abstract
- The finance-led growth hypothesis states that financial
development promotes economic growth by enhancing either
efficiency of capital accumulation or technological innovation or
both. A typical strategy to test the validity of the hypothesis is
to regress measures of financial development on aggregate
growth measures such as GDP per capital growth. This type of
approach is problematic because of simultaneity. Furthermore,
the channel of influence from the financial sector to the real
sector is not specified. This paper focuses on the innovation
channel of influence and tests whether financial development
positively affects the rate of technological innovation. By
focusing on a specific channel of influence, simultaneity is
ameliorated. Using a panel of patent application data of
developing countries as a proxy for technological innovation, this
paper provides evidence that financial development seems to be
an important determinant of the rate of technological innovation
across countries and over time.
- ISSN
- 1225-0279
- Language
- English
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