Abstract: We extend the endogenous growth model with horizontal innovations to construct a five-sector growth model in which a financial sector is introduced. In this set-up,the solution in the balanced growth path shows that steady state consumption and output growth rate essentially depend on the productivity in R &D sector,human capital sector as well as financial sector. The further comparative static analysis demonstrates that more efficient financial system leads to higher steady state growth rate,but the effects of productivity in other sectors on financial sector are uncertain.

Key words: financial develop ment, saving-investment ratio, innovation, endogenous growth