Institutions, Innovations, and Growth

Posted: 22 Sep 1999

See all articles by Haizhou Huang

Haizhou Huang

International Monetary Fund (IMF)

Chenggang Xu

University of Hong Kong

Multiple version iconThere are 3 versions of this paper


Financial institutions affect R&D and growth through their roles as corporate control devices with respect to disciplining managers and selecting projects. For an institution which generates a soft-budget constraints problem, we show how it creates conditions for relatively low economic growth when the risk of R&D investment is high. In contrast, in a different financial institution which generates hard-budget constraints, relatively high economic growth can be achieved when the risk of R&D investment is high. However, growth in a soft-budget constraint economy can be high if the risk level of R&D is very low, such as in cases of technological imitation. Our results reconcile the debate on the 'East Asia miracle' vs. the East Asia financial crisis, and they shed light the rise and fall of centralized economies.

JEL Classification: O16

Suggested Citation

Huang, Haizhou and Xu, Chenggang, Institutions, Innovations, and Growth. Available at SSRN:

Haizhou Huang (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Chenggang Xu

University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics