2017/30 | LEM Working Paper Series | ||||||||||||||||
Innovation, Finance, and Economic Growth: An Agent-Based Approach |
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Giorgio Fagiolo, Daniele Giachini and Andrea Roventini |
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Keywords | |||||||||||||||||
Agent-based Models, Innovation, Exploration vs. Exploitation, Endogenous Growth, Banking Sector, Finance-Growth Nexus
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JEL Classifications | |||||||||||||||||
C63, G21, O30, O31
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Abstract | |||||||||||||||||
This paper extends the endogenous-growth agent-based model in
Fagiolo& Dosi (2003) to study the finance-growth nexus. We explore
industries where firms produce a homogeneous good using existing
technologies, perform R&D activities to introduce new techniques, and
imitate the most productive practices. Unlike the original model, we
assume that both exploration and imitation require resources provided
by banks, which pool agent savings and finance new projects via
loans. We find that banking activity has a positive impact on
growth. However, excessive financialization can hamper growth. Indeed,
we find a significant and robust inverted-U shaped relation between
financial depth and growth. Overall, our results stress the
fundamental (and still poorly understood) role played by innovation in
the finance-growth nexus.
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