Knowledge, Technology Adoption and Financial Innovation

Abstract: Why are new financial instruments created? Why are they needed and what purpose do they serve? This paper proposes the view that financial development arises as a response to the contractual needs of emerging technologies. Exogenous technological progress generates a demand for new financial instruments in order to share risk or overcome private information, for example. A model of the dynamics of technology adoption and the evolution of financial instruments that support such adoption is presented. Early adoption may be required for financial markets to learn the technology; once learned, financial innovation boosts adoption further. An implication of the analysis is the notion that financial development promotes economic growth only to the extent that it enhances the adoption of new technologies.

Date: 2004
New Economics Papers: this item is included in nep-cfn, nep-dev, nep-ent and nep-his
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Working Paper: Knowledge, Technology Adoption and Financial Innovation (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:cmf:wpaper:wp2004_0408

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