The generation and implementation of new ideas, or knowledge, is a major
factor underlying economic growth. It is commonly believed that Önancial
development plays a role in facilitating this process. We analyze these
issues by building an endogenous growth model where advances in knowledge
lead to increases in productivity, and this is aided by the exchange
of ideas, but credit frictions can impede this market and hence hinder
the advancement of knowledge and economic growth. Knowledge here is
a nonrival goods at least in the long run, as ideas enter the public domain.
We also present evidence for the case that technology transfers
are an important part of the innovation process, and that credit market
imperfections hinder this process.