TRANSACTIONS COSTS, TECHNOLOGICAL CHOICE, AND ENDOGENOUS GROWTH

Hicks (''A Theory of Economic History,'' Clarendon Press, Oxford, 1969 ) argues that an important aspect of industrial development is the ado ption of technologies requiring highly illiquid capital investments. T he adoption of such technologies becomes economically viable in the pr esence of low-cost financial markets that provide liquidity to investo rs. This observation provides a mechanism by which the costs of transa cting in financial markets affect the equilibrium choice of technology , productive efficiency, and, by implication, growth. We analyze how t he costs of financial market transactions affect the set of technologi es in use and the equilibrium growth rate. Transactions cost reduction s may, depending on the capital structure, enhance or reduce growth. ( C) 1995 Academic Press, Inc.