In countries with well functioning credit markets, increases in financial activity often take the form of financial engineering. We use a structural framework to characterize and quantify the connection between financial engineering activities and economic development. In our model, producers split the stochastic cash flows they generate to create securities that appeal to investors with hetero...

A burgeoning literature finds that financial development exerts a first-order impact on long-run economic growth, which raises critical questions, such as why do some countries have welldeveloped growth-enhancing financial systems, while others do not? The law and finance theory focuses on the role of legal institutions in explaining international differences in financial development. First, th...

The direction of causality between financial intermediation and real economic progress has been a source of discussion over long periods of time. Instead of exogenously siding with one particular direction a priori, this paper provides a different treatment on this debate by considering the interaction between financial and real sectors to be not just a question of causality, but an issue of co...

We examine the extent to which financial market development impacts the diffusion of 16 major technologies, looking across 55 countries, from 1870 to 2000. We find that greater depth in financial markets leads to faster technology diffusion for more capital-intensive technologies, but only in periods closer to the invention of the technology. In fact, we find no differential effect of financial...

This paper examines the effect of foreign direct investment (FDI) on growth by focusing on the complementarities between FDI inflows and financial markets. In our earlier work, we found that FDI is beneficial for growth only if the host country has well-developed financial institutions. In this paper, we investigate whether this effect operates through factor accumulation and/or improvements in...