Abstract:
This thesis presents a three-sector ¯nance-extended endogenous growth model
with constant returns to scale in renewable natural resource production in
combination with physical and technological capital. The purpose of this the-
sis is to provide a theoretical framework that investigates whether and how
¯nancial institutions impact capital accumulation, output productivity and
economic growth through the channel of renewable natural capital. Sound
¯nancial institutions improve savings and investments and also e®ectively al-
locate resources in capital producing ventures that in return enhance output
productivity and stimulate economic growth. In this model, renewable natu-
ral capital will be used in the production of the ¯nal consumption good and
the technological capital. I will solve the model along balanced growth path
(BGP) and further discuss stability analysis and transitional dynamics of my
model. I have found that renewable natural capital and technological capital
accumulation positively depend on ¯nancial development therefore developing
economies with a well developed ¯nancial sector display higher output growth
and reach to the global frontier at a faster rate.
