Economic Theory

, Volume 12, Issue 3, pp 519–560 | Cite as

The evolution of debt and equity markets in economic development

  • John H. Boyd
  • Bruce D. Smith


As noted by Gurley and Shaw, there is a typical pattern of economic development in which the evolution of the financial system is an essential aspect of the growth process. We focus on one component of this evolution: the increasing importance of equity markets as an economy grows. We develop a growth model where capital accumulation is financed externally through a combination of debt and equity. We illustrate why equity market activity might grow – often very rapidly – as an economy develops. We also illustrate why access to equity markets may not be needed in the early stages of economic development.

Keywords and Phrases: Finance Growth Development. 
JEL Classification Numbers: E13 E44 E50 G20 O16. 


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Copyright information

© Springer-Verlag Berlin Heidelberg 1998

Authors and Affiliations

  • John H. Boyd
    • 1
  • Bruce D. Smith
    • 2
  1. 1. Finance Department, University of Minnesota, Minneapolis, MN 55455, USA (e-mail:
  2. 2. Department of Economics, University of Texas at Austin, Austin, TX 78712, USA (e-mail:

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