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Industrial Diversification, Financial Development and Productive Investments

Author

Listed:
  • Alfredo Schclarek

    (Universidad Nacional de Córdoba)

Abstract

This paper analyzes, from a theoretical perspective, the role of the financial system to promote growth and macroeconomic stability. It also endogenously explains the performance of the financial systems as a consequence of industrial (or sectoral) diversification. In the model, the productive sector carries out R&D activities and finances its activities through the financial system. While vertical innovation fosters economic growth, horizontal innovation creates new industrial sectors and therefore generates an increase of industrial diversification. A larger industrial diversification deepens the financial system because it improves its possibilities of financing the productive sector. A more diversified economy (better financially developed as a result) will have higher growth rates and will be less volatile. There is a role for the government to subsidize innovation, especially horizontal innovation.

Suggested Citation

  • Alfredo Schclarek, 2007. "Industrial Diversification, Financial Development and Productive Investments," BCRA Working Paper Series 200726, Central Bank of Argentina, Economic Research Department.
    • Handle: RePEc:bcr:wpaper:200726
    as

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    File URL: http://www.bcra.gov.ar/pdfs/investigaciones/WP%202007%2026e%20Premio.pdf
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    Keywords

    economic growth; financial development; imperfect information; industrial diversification; horizontal innovation; vertical innovation;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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