An endogenous growth model with multiple assets is developed. Agents who face random future liquidity needs accumulate capital and a liquid, but unproductive asset. The effects of introducing financial intermediation into this environment are considered. Conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital, causing intermediation to be growth promoting. In addition, intermediaries generally reduce socially unnecessary capital liquidation, again tending to promote growth.

Economic development is typically accompanied by migration from rural to urban employment. This migration is often associated with significant urban underemployment. Both factors are important in the development process. We consider a neoclassical growth model with rural‐urban migration and urban underemployment, which arises from an adverse selection problem in labor markets. We demonstrate that rural‐urban migration and underemployment can be a source of development traps and can give rise to a large set of periodic equilibria display long periods of uninterrupted growth, punctuated by brief but severe recessions.