Financial Development and Endogenous Growth with Horizontal Innovation

We extend the endogenous growth model with horizontal innovations by establishing a five-sector growth model in which we introduce an independent financial sector. The model solution in the balanced growth path shows that steady-state consumption and output growth rate essentially depends on the productivity in R&D sector, human capital sector as well as financial sector. Further comparative static analysis demonstrates that more efficient financial system leads to higher steady-state growth rate, but the effects of productivity in other sectors on financial sector are uncertain