Premium
Long‐Term Financial Contracts and Technological Choice[Note 1. I would like to thank two anonymous referees, the ...]
Author(s) -
Bougheas Spiros
Publication year - 1998
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/1467-8586.00051
Subject(s) - economics , term (time) , production (economics) , financial market , product (mathematics) , capital (architecture) , finance , capital market , microeconomics , physics , geometry , mathematics , archaeology , quantum mechanics , history
The paper establishes a theoretical link between financial innovation and economic development. In an economic environment where product development takes place, it is shown that the gains from long‐term financial contracting go beyond the minimization of costs associated with frictions in the capital markets. They can also result in the adoption of more efficient technologies by the production sector. Furthermore, the model suggests that financial innovation is also a byproduct of economic development, providing a possible explanation for the lack of long‐term financial markets in less‐developed economies.