The paper presents a model in which credit-constrained firms might delay the adoption of new and more productive technologies because of the very high external financing costs they face. Our point of departure is that the efficiency of the banking system can have a profound impact on real...

The development of financial systems is very often characterised by the development of innovative financial contracts which allow a more efficient allocation of resources and a higher level of capital productivity and economic growth. By exploiting the microeconomic theory of the optimal...