Liquidity, innovation, and endogenous growth

Semyon Malamud and Francesca Zucchi

No 1919, Working Paper Series from European Central Bank

Abstract: We study optimal liquidity management, innovation, and production decisions for a continuum of firms facing financing frictions and the threat of creative destruction. We show that financing constraints lead firms to decrease production but may spur investment in innovation (R&D). We characterize which firms should substitute production for innovation in the face of constraints and thus display a "gambling" type of behavior. We embed our firm dynamics into a model of endogenous growth and show that financing frictions have offsetting effects on economic growth. JEL Classification: D21, G31, G32, G35, L11

Keywords: cash management; Endogenous Growth; financial constraints; innovation (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-bec, nep-cse, nep-ent, nep-ger, nep-ino and nep-sbm
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20161919

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