Institutions, Innovations, and Growth

Abstract

The fundamental importance of economic institutions for economic growth through their impact on technological change has been argued, reconfirmed by recent empirical studies, but not examined theoretically. This paper tries to fill that gap. In the model proposed, economic growth is affected by the efficiency and riskiness of research and development (R&D), which are endogenized through financial institutions. The theory and its results shed lights on the debate of convergence versus divergence; the East Asia miracle versus the East Asia financial crisis; and the rise and fall of centralized economies.

Keywords: Financial Institutions, Technological Innovations, Economic Growth

JEL Classification: E20, G28, O31, O40