Secondary capital markets, long-run growth, and the term structure of asset yields

An endogenous growth model is presented in which production uses a vector o f capital inputs. Technologies for creating capital of different types vary by gestation period and productivity. Ownership of gestating capital must be "rolled over" in secondary capital markets in which transactions are cos tly. We study how reductions in transactions costs affect the equilibrium g rowth rate, the rate of return on saving, the volume of activity in seconda ry capital markers, and the term structure of asset yields. We give conditi ons under which reductions in transactions costs result in higher or lower growth rates.