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Luc Laeven

International Monetary Fund

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Recent Commentary

Financial Innovation and Endogenous Growth

by Ross Levine, Stelios Michalopoulos, Luc Laevenvia IP2 Working Paper Series
Tuesday, January 21, 2014

IP² Working Paper No. 14002 - We model technological and financial innovation as reflecting the decisions of profit-maximizing agents and explore the implications for economic growth. We start with a Schumpeterian model where entrepreneurs earn profits by inventing better goods and financiers arise to screen entrepreneurs. A novel feature of our model is that financiers also engage in the costly, risky, and potentially profitable process of innovation: Financiers can invent more effective processes for screening entrepreneurs.