Differences in Growth with International Capital Markets and Financial Innovation

Are differences in growth possible with international capital markets? This paper presents a model in which techological progress affects the financial intermediaries productivity. As a consequence, technological progress speed and growth rates of production and consumption may diverge across countries, even with free capital mobility. A liberalization of international capital movement increases the growth rates of consumption and National Income in every country. Such a liberalization increases the technological progress speed and the Domestic Income growth rate in fast-growing countries but reduces the technological progress speed, the Domestic Income growth rate and the income equality in slow-growing countries.