The Coevolution of the Real and Financial Sectors in the Growth Process | Zendy

John H. Boyd | Zendy; Bruce D. Smith | Zendy

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The Coevolution of the Real and Financial Sectors in the Growth Process

Author(s) -

John H. Boyd,

Bruce D. Smith

Publication year - 1996

Publication title -

the world bank economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 1.542

H-Index - 89

eISSN - 1564-698X

pISSN - 0258-6770

DOI - 10.1093/wber/10.2.371

Subject(s) - equity capital markets , economics , equity (law) , debt to equity ratio , debt , government debt , monetary economics , equity risk , equity ratio , finance , private equity , population , demography , sociology , political science , law , nonprobability sampling

The role of debt and equity changes over time and with the level of development. What are these changes, and why should they systematically occur across different countries and time periods? This article characterizes financial innovation as a dynamic process that both influences and is influenced by the development of the real sector. It focuses on the emergence and development of equity markets, using a model that allows for growth and for capital accumulation that is financed externally through a combination of debt and equity. As an economy develops, the aggregate ratio of debt to equity will generally fall; yet, debt and equity remain complementary sources for the financing of capital investments. The results suggest how various government policy actions might affect capital 'accumulation and equity market activity.

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