financial markets and growth the last five years have witnessed a resurgence of interest in the relationship between financial intermediation and economic growth this issue had been extensively studied nearly two decades earlier by goldsmith 1969 mckinnon 1973 shaw 1973 and others who produced considerable evidence that financial development correlates with growth but their work though insightful lacked analytical foundations in traditional growth theory financial intermediation could be related to the level of the capital stock per worker or to the level of productivity but not to their respective growth rates the latter were ascribed to exogenous technical progress the recent revival of interest in the link between financial development and growth stems mainly from the insights and techniques of endogenous growth models which have shown that there can be self sustaining growth without exogenous technical progress and that the growth rate can be related to preferences technology income distribution and institutional arrangements this provides the theoretical underpinning that early contributors lacked tinancial intermediation can be shown to have not only level effects but also growth effects the resulting models have offered important insights into the effect of financial development on growth and vice versa they have also provided new impetus to empirical research on these issues this paper reviews the ground covered so far on the theoretical and empirical front and points to some still unresolved issues

closing the regional equity gap a critique of the department of trade and industry s regional venture capital funds initiative mason c m and harrison r t 2003 closing the regional equity gap a critique of the department of trade and industry s regional venture capital funds initiative reg studies 37 855 868 the uk labour government has provided support for the establishment of regional venture capital funds in each of the english regions as part of its drive to create an entrepreneurially led knowledge based economy this initiative is a response to persistent gaps in the provision of start up and early stage venture capital in this paper we question the likely effectiveness of the initiative on four counts first there is a lack of early stage venture capital skills available to manage the funds second the small size of the funds will make it difficult for them to achieve financial viability third the funds are targeting the wrong problem the maximum investment that they are allowed to make is 250 000 they may subsequently provide up to an additional 250 000 in follow on financing however the main fundin

the winner s curse problem interest costs and the underpricing of initial public offerings this paper provides the first direct test of the winner s curse problem proposed by k rock 1986 as an explanation to the underpricing of initial public offerings moreover it tests the proposition that the underpricing of initial public offerings in the united kingdom is due to the combined effect of the winner s curse problem and the particular nature of the settlement mechanism applicable in the british new issues market the evidence demonstrates that when these two factors winner s curse problems and interest rate costs are taken into consideration the emerging first day net returns are on average markedly lower than the level of actual underpricing consistently superior performance can only be achieved by predicting the market s response to the individual new issue the results however indicate that such predictive ability is largely unattainable copyright 1990 by royal economic society

closing the regional equity capital gap the role of informal venture capital there is evidence from a number of countries that small firms encounter a shortage of long term investment finance particularly at start up and initial growth expansion of the institutional venture capital industry has done little to fill this equity gap on account of its preference for making large investments in established companies and management leveraged buyouts moreover the supply of venture capital exhibits a high level of spatial concentration initiatives by state provincial and local governments most notably in economically lagging regions to increase the supply of risk capital for start ups and early stage businesses have at best provided a very partial and often costly solution a more appropriate approach to increasing the supply of start up and early stage finance is to facilitate the more efficient operation of theinformal venture capital market informal investors or business angels are private investors who provide risk capital directly to new and growing businesses in which they have no family connection most business angels are unable to find sufficient investment opportunities and so have substantial uncommitted funds available there is also considerable scope for expanding the population of business angels the most cost effective means of closing the equity gap is therefore for the public sector to underwrite the operating costs of business introduction services whose objective is to overcome the two main sources of inefficiency in the informal venture capital market namely the invisibility of business angels and the high search costs of angels seeking investment opportunities and entrepreneurs seeking investors by the provision of a channel of communication between informal investors and entrepreneurs seeking finance

the regional financial sector a scottish case study dow s c 1992 the regional financial sector a scottish case study reg studies 26 619 631 the regional finance literature suggests that financial market segmentation may affect regional economic activity but that the uk financial sector is sufficiently integrated to rule out this effect this paper attempts to broaden the scope of the debate by considering the credit creating behaviour of the banking sector together with the interdependent financial behaviour of all other sectors in a region it is concluded that financial behaviour in this broad sense affects regional activity even in an integrated national financial market in particular financial integration may adversely affect the allocation of new credit to a peripheral region the argument is assessed by considering the scottish case dow s c 1992 le secteur financier regional cas d etude de l ecosse reg studies 26 619 631 la documentation relative au secteur financier regional laisse supposer que la segmentation du marche finan

endogenous growth and the emergence of equity finance abstract this paper characterises the development of equity markets as a dynamic process that both influences and is influenced by the development of the real sector of the economy in overlapping generations economy borrowers seek funds to run risky investment projects by drawing up contracts which may take the form of either equity or debt issue in the presence of information asymmetry between borrowers and lenders the optimal contract is determined by trading off information dilution costs against bankruptcy costs significantly the equilibrium choice of contract depends on the state of the economy which in turn depends on the contracting regime based on this analysis the paper provides a theory of the joint determination of real and financial development with the ability to explain the emergence of a stock market along the path of real development

venture capital the regions and public policy the united kingdom since the post 2000 technology crash mason c and pierrakis y venture capital the regions and public policy the united kingdom since the post 2000 technology crash regional studies the geography of venture capital in the united kingdom has been shaped since the year 2000 by a significant increase in public sector venture capital funds venture capital investments are now less concentrated in the south east however investment activity in the midlands and north is dominated by the public sector deal sizes in these regions are small venture capital measured by the total amount invested remains over concentrated in london and the south east where private sector investors continue to dominate this paper concludes by questioning whether this increased dependence of northern regions on public sector venture capital matters mason c and pierrakis y 2000 2000

intelligence social mobility and growth this study develops a model where the allocation of human resources intergenerational social mobility and technological growth are jointly determined high growth endogenously increases the equilibrium return to innate cognitive ability and makes the allocation of individuals depend more on innate ability and less on social background a social allocation based on innate ability and high growth will thus reinforce each other implying the possibility of multiple endogenous growth equilibria

entrepreneurship and economic theory this article discusses economic theories of entrepreneurship drawing principally on work conducted in labour economics microeconomics macroeconomics and financial economics the article explains how incentives and constraints of various kinds affect occupational choices and entrepreneurial innovation as well as how entrepreneurial decisions affect macroeconomic performance implications for public policy are drawn

policy review section in this policy review section gerry stoker of the institute of local government studies presents a critical review of the role of urban development corporations udcs in comparing the experience of the udcs consideration is given to the varying nature of the land and property market in each udc area to the relationship with local authorities and other local bodies and the regeneration strategies pursued by the udcs this is followed by an assessment of the impact of the udcs in economic social and political terms in the second article john britton of the university of toronto examines the theoretical case for interventionist public policies to assist the innovation process in small and medium sized enterprises these arguments are supported by a review of the experience of various national support programmes introduced in the uk in particular the manufacturing advisory service introduced in 1978 and the design advisory service launched in 1982

occupational choice and the spirit of capitalism the british industrial revolution triggered a socioeconomic transformation whereby the landowning aristocracy was replaced by industrial capitalists rising from the middle classes as the economically dominant group we propose a theory of preference formation under financial market imperfections that can account for this pattern parents shape their children s preferences in response to economic incentives middle class families in occupations requiring effort skill and experience develop patience and a work ethic whereas upper class families relying on rental income cultivate a refined taste for leisure these class specific attitudes which are rooted in the nature of preindustrial professions become key determinants of success once industrialization transforms the economic landscape i introduction the industrial revolution was more than capital accumulation and growth it also set off a social and political transformation that redefined hierarchies in society and reshaped the distribution of income and wealth before the onset of industrialization in eighteenth century britain wealth and political power were associated with the possession of land over the course of the nineteenth century a new class of entrepreneurs and businessmen emerged as the economic elite for the most part the members of this class rose from humble beginnings and had their social origins in the urban middle classes the landed elite was left behind and eventually lost its political and economic predominance many observers of the time linked this reversal in economic fortunes to differences in values attitudes and ultimately preferences across social classes there are countless examples both in scholarly and in fictional writing of portrayals of members of the landowning class as averse to work unwilling to save ill disposed tocommercialactivity andunabletoconsidermoneyassomething

vintage human capital growth and the diffusion of new technology we develop a model of vintage human capital in which each technology requires vintage specific skills we examine the properties of a stationary equilibrium for our economy the stationary equilibrium is characterized by an endogenous distribution of skilled workers across vintages the distribution is shown to be single peaked under general conditions there is a lag between the appearance of a technology and its peak usage a phenomenon known as diffusion an increase in the rate of exogenous technological change shifts the distribution of human capital to more recent vintages thereby increasing the diffusion rate

social mobility and redistributive politics just like economists voters have conflicting views about redistributive taxation because they estimate its incentive costs differently we model rational agents as trying to learn from their dynastic income mobility experience the relative importance of effort and predetermined factors in the generation of income inequality and therefore the magnitude of these incentive costs in the long run left wing dynasties believing less in individual effort and voting for more redistribution coexist with right wing dynasties this allows us to explain why individual mobility experience and not only current income matters for political attiitudes and how persistent differences in perceptions about social mobility can generate persistent differences in redistribution across countries

endogenous market thinness and stock price volatility thin equity markets cannot accommodate temporary bulges of buy or sell orders without large price movements the resulting volatility can induce risk averse transactors who face transaction costs to desert these markets thus thinness and the related price volatility may become joint self perpetuating features of an equity market irrespective of the volatility of asset fundamentals if however appropriate incentive schemes are adopted to encourage entry by additional investors this vicious circle can be broken eventually shifting the market to a selfsustaining superior equilibrium characterized by a higher number of transactors lower price volatility and larger supply of the asset a number of empirical studies cohen et al 1976 telser and higimbotham 1977 pagano 1986 tauchen and pitts 1983 have found that thin speculative markets are ceteris paribus more volatile than deep ones a plausible explanation for this finding is that thin markets are generally characterized by small numbers of transactors per unit time and thus their prices are more sensitive to the impact of individual traders demand shocks conversely in deep markets transactors are so many that the uncorrelated demand shocks experienced by individual traders tend to offset each other and leave market prices largely unaffected while this suggests a rationale for the observed relationship between market size and price volatility it does so by taking market size as the exogenous factor however the volatility of a speculative market may feed back on its size in the sense that the high liquidation risk implied by very volatile prices can induce potential entrants to keep out of the market this paper shows that in a stock market with transaction costs this interaction between thinness and volatility can produce multiple steady state equilibria some characterized by low trade and high volatility and others by high trade and low volatility whether the market will settle in one equilibrium or another depends entirely on the expectations held by economic agents sections 2 and 3 the existence of these multiple bootstrap equilibria can be explained heuristically as follows each additional trader generates a positive externality for other actual or potential traders by decreasing the riskiness of the stock lower risk in turn tends to attract more investors with the effect of raising stock prices and inducing corporations to issue additional equity we thus have a feedback loop between market size and price volatility where market size is measured both along the dimension of the number of traders and along that of the total stock of equities if however investors face transactions costs in the stock market this positive feedback may fail to be operative if the volume of trade is expected to be small investors with relatively high transaction costs will abstain from trading thus the market

emerging stock markets portfolio capital flows and long term economie growth micro and macroeconomic perspectives abstract the paper examines two major components of financial liberalization stock market development and portfolio capital flows in the context of less developed countries the paper considers microeconomic and macroeconomic perspectives on their implications for long term development and economic growth it concentrates on 1 a the role of stock markets in financing corporate growth 2 b the implications of stock market volatility for resource allocation and productive efficiency and 3 c the interactions between the foreign exchange and stock markets in the context of economic shocks its policy recommendations are that ldcs should promote bank based systems influence the scale and composition of capital inflows and prevent a market for corporate control from emerging

the growth and geographical anatomy of venture capitalism in the united kingdom martin r l 1989 the growth and geographical anatomy of venture capitalism in the united kingdom reg studies 23 389 403 the 1980s have seen the emergence and rapid growth of venture capitalism in the uk this paper examines this growth both in terms of the spatial organization of the venture capital industry and the regional distribution of venture capital investment the picture that emerges is of an industry which is over centralized in the london area and which in the course of its recent development has tended to concentrate investment in the already more prosperous southeastern and adjacent parts of the country while local venture capital markets are beginning to become established in northern britain it will be some time before the existing regional imbalance is likely to be redressed martin r l 1989 la croissance et la distribution geographique du capital risque au royaume uni reg studies 23 389 403 les annees 1980 ont temoigne de la naissance et de l essor du capital risque au

interest rates and convergence across italian regions dow s montagnoli a and napolitano o interest rates and convergence across italian regions regional studies the purpose of this paper is to investigate the evidence for economic convergence across italian regions using trends in interest rate spreads and premia as indicators of regional credit conditions the results indicate the presence of persistent interest rate differentials and thus an absence of convergence across the twenty political regions but a high degree of convergence is observed within the four macroeconomic areas dow s montagnoli a and napolitano o 20 dow s montagnoli a et napolitano o les taux d interet et la convergence a travers les regions italiennes regional studies a partir des tendances des marges d interet sur les credits et des primes sur les taux d interet comme indicateurs des conditions de credit regionales cet article cherch

how deep are the roots of economic development the empirical literature on economic growth and development has moved from the study of proximate determinants to the analysis of ever deeper more fundamental factors rooted in long term history a growing body of new empirical work focuses on the measurement and estimation of the effects of historical variables on contemporary income by explicitly taking into account the ancestral composition of current populations the evidence suggests that economic development is affected by traits that have been transmitted across generations over the very long run this article surveys this new literature and provides a framework to discuss different channels through which intergenerationally transmitted characteristics may impact economic development biologically via genetic or epigenetic transmission and culturally via behavioral or symbolic transmission an important issue is whether historically transmitted traits have affected development through their direct impact on productivity or have operated indirectly as barriers to the diffusion of productivityenhancing innovations across populations jel j11 o33 o47 z13

undermining the financial basis of regions the spatial structure and implications of the uk pension fund system martin r and minns r 1995 undermining the financial basis of regions the spatial structure and implications of the uk pension fund system reg studies 29 125 144 regional growth theory and regional policy traditionally focus on the process of industrial development relatively little is known about the flows of money and financial capital that shape that development this paper examines the spatial organization and implications of the uk pension fund system one of the principal circuits of financial capital in the national economy it is shown how the great bulk of pension fund contributions that originate right across the various regions of the uk are channelled into and controlled by financial institutions in the south east of the country moreover those funds are then invested primarily back into companies and organizations located or headquartered in the south east this spatially centralized system pursues liquidity rather than productive investment and little of the money trickles down to

culture in development an anti capitalist cultural bias through directed within family human capital transmission adversely affects the supply of entrepreneurial talent and risk taking this limits economic progress if aggregate productivity is low when productivity is high economic incentives can overcome cultural inertia though the income level depends on culture the growth rate in this case does not

economics and identity this paper considers how identity a person s sense of self affects economic outcomes we incorporate the psychology and sociology of identity into an economic model of behavior in the utility function we propose identity is associated with different social categories and how people in these categories should behave we then construct a simple game theoretic model showing how identity can affect individual interactions the paper adapts these models to gender discrimination in the workplace the economics of poverty and social exclusion and the household division of labor in each case the inclusion of identity substantively changes conclusions of previous economic analysis

entrepreneurship culture and the epigenetic revolution a research note we show how the type of alcohol consumed is related to the type of entrepreneurship present for economies in europe we differentiate between beer wine and spirit drinking countries and disting

venture capital high technology and regional development florida r l and kenney m 1988 venture capital high technology and regional development reg studies 22 33 48 this paper explores the role of venture capital in technological innovation and regional development both aggregate data and a unique firm level data base are employed to determine the location of major centres of venture capital flows of venture capital investments and patterns of investment syndication or coinvestment among venture capital firms three major centres of venture capital are identified california san francisco silicon valley new york and new england massachusetts connecticut as well as three minor venture capital centres illinois chicago texas and minnesota venture capital firms are found to cluster in areas with high concentrations of financial institutions and those with high concentrations of technology intensive enterprises venture capital firms which are based in financial centres are typically export oriented while those in technology centres tend t

venture finance small firms and public policy in the uk abstract during the tenure of the current conservative administration public policy in britain has very much favoured the smaller firm this policy emphasis appears to be based on a belief in the superior job creating potential and innovatory capacity of smaller firms over their larger counterparts evidence presented in the paper shows that small firms have indeed made an important contribution to innovation in the uk and that their share of significant british innovations has increased significantly since the mid 1970s an important aspect of small firm policy in the uk has been the introduction of several schemes designed to increase the flow of capital into the small firm sector with special emphasis being placed on venture capital the first of these schemes the loan guarantee scheme has directed capital from the banks into over 14 000 small firms the second scheme the business expansion scheme has increased significantly the overall flow of venture capital and has biased investments towards start up and early stage financing these two schemes together with the establishment of an unlisted securities market have provided some impetus to the development of private sector venture capital in britain which is growing apace essentially the public sector schemes have underwritten the costs of entry to the venture capital market of both individual and institutional investors in other words they have had an important catalytic effect in stimulating the growth of private sector venture capital industry which is now the largest in europe

economic history and modern india redefining the link this paper argues that to restore the link between economic history and modern india a different narrative of indian economic history is needed an exclusive focus on colonialism as the driver of india s economic history misses those continuities that arise from economic structure or local conditions in fact market oriented british imperial policies did initiate a process of economic growth based on the production of goods intensive in labor and natural resources however productive capacity per worker was constrained by low rates of private and public investment in infrastructure excessively low rates of schooling social inequalities based on caste and gender and a delayed demographic transition to lower birthrates and the resultant heavy demographic burden placed on physical capital and natural resources

cultural transmission and persistence of entrepreneurship this paper contributes to explain the persistence of differences in levels of entrepreneurship within and across countries we provide an explanation based on the dynamic interplay between purposeful intergenerational transmission of preferences for entrepreneurship and public administration efficiency individuals vote on taxes and the collected taxes fund the civil servants wages the performance of the administration generating an efficient normative and regulatory environment affects the success of entrepreneurship we show that an economy can reach two different long run equilibria a traditional equilibrium with a low proportion of entrepreneurs high taxes and an inefficient administration and an entrepreneurial equilibrium with a high proportion of entrepreneurs and lower taxes but enough to implement an efficient administration the equilibrium achieved depends on the tax policy followed by the different generations if decisions are made by majority voting in a myopic way then the initial conditions of the society become crucial this result explains persistence an economy evolves around similar levels of entrepreneurship unless some reforms are implemented

the culture of entrepreneurship abstract we study the cultural process through which a society inculcates an entrepreneurial spirit people work for a guaranteed wage or operate a firm whose risky return depends on business expertise the latter is culturally acquired within the family or outside and people may choose an occupation different from the one they were socialized into a cultural bias towards safer occupations from colonial and post colonial policies leads to stagnation where entrepreneurs do not upgrade technology because of their proficiency with existing methods an aggregate productivity shock can tip this economy towards growth led by established businesses a human capital shock where existing business expertise is less useful is more disruptive growth occurs through the emergence of a new class of entrepreneurs we conclude that culture is not destiny it adapts even when some cultural traits do not

the flotation of companies on the stock market abstract in some countries the size of the stock market and the number of listed companies have persistently lagged behind the growth of the economy trading externalities can help explain this fact an entrepreneur who goes public increases risk sharing opportunities for others this externality can lead to an inefficiently low number of listed companies and also generate multiple equilibria when flotation decisions are positively correlated across entrepreneurs this happens if these face borrowing constraints and lack liquidity and thus cannot diversify their portfolios unless they go public it also happens if trading shares is costly so that a sufficient number of issues must be listed to lure investors into the market

vested interests in a positive theory of stagnation and growth we study a positive theory of stagnation and growth aimed at understanding the large variations in growth outcomes across actual economies the theory points to the fundamental role played by vested interests in determining policies which are key to the growth process some agents seek to prevent the adoption of new technologies we develop a model of technology adoption and show how technological innovation may sow the seeds of its own destruction in particular we find that the equilibrium is characterized by a long cycle of stagnation and growth over this cycle incumbents are phased out of the economy will new innovation occur in formalizing our theory we make a methodological contribution by characterizing dynamic voting equilibria when voters must forecast the effects of different current policies on future prices and policy outcomes

cultural endowments and economic development what can we learn from anthropology this article discusses a pattern model used to map the general equilibrium relationship relationship between resource endowments cultural endowments technology and institutions one advantage of the pattern model is that helps to identify areas of ignorance our capacity to model and test the relations between resource endowments and technical change is relatively strong our capacity to model and test the relations between cultural endowments and either technical or institutional change is relatively weak a second advantage of the model is that it is useful in identifying the components that enter into other attempts to account for secular economic and social change failure to analyze historical change in a general equilibrium context tends to result in a unidimensional perspective on the relations bearing on technical and institutional change for example historians working within the marxist tradition often tend to view technical change as dominating both institutional and cultural change cultural endowments including religion and ideology exert at least some influence on the supply of institutional innovation cultural endowments make some forms of institutional change less costly to establish and impose severe costs on others there are a number of reasons that one might look to the field of anthropology for guidance in attempting to understand the sources and impact of cultural endowments on economic development one is that anthropology has traditionally embraced a broad conception of culture ethnographic research through its examination of alternative culture patterns has made substantial contributions to institutional reform

the costs of going public abstract this paper presents evidence regarding the two quantifiable components of the costs of going public direct expenses and underpricing together these costs average 21 22 of the realized market value of the securities issued for firm commitment offers and 31 87 for best efforts offers for a given size offer the direct expenses are of the same order of magnitude for both contract types but the underpricing is greater for best efforts offers an explanation of why some firms choose to use best efforts offers in spite of their apparent higher total costs is given

business angel networks and the development of the informal venture capital market in the u k is there still a role for the public sector business angel networks bans provide a channel of communication between private venture capital investors business angels and entrepreneurs seeking risk capital most operate locally on a not for profit basis with their costs underwritten by the public sector however the recent establishment of bans by private sector organisations in the u k has led to a questioning of the government s continuing role in the financing of bans this paper demonstrates that there are significant differences between public sector and other not for profit bans and private sector commercially oriented bans in terms of the investments that they facilitate private sector bans are primarily involved with larger later stage deals whereas investments made through not for profit bans are generally smaller involve start ups and other early stage businesses and are local the emergence of private sector bans has therefore not eliminated the need for public sector support for locally oriented networks

developing indicators to inform local economic development in england based on a conceptual framework of 11 factors that are widely perceived to be the major determinants of local economic development led 29 indicators were identified to measure these factors pri