A Traffic-Jam Theory of Growth

Daria Finocchiaro and Philippe Weil ()
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Philippe Weil: Université libre de Bruxelles and CEPR

No 442, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: We investigate the growth-finance nexus in an endogenous growth model with search frictions and congestion effects in credit and innovation markets. The interplay between these two frictions generates a nonlinear relationship between finance and growth. Financial development eases the financing of innovation but can exacerbate bottlenecks in R&D. In a calibration close to the U.S. economy, finance has a negative impact on growth. This effect is quantitatively small– consistent with the observation that, in the last century, most developed economies have experienced an expansion of the financial sector and almost constant growth rates of GDP.

Keywords: Growth; Finance; Search frictions; Technology; Innovation (search for similar items in EconPapers)
JEL-codes: E51 G24 O40 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2024-10-01
New Economics Papers: this item is included in nep-fdg, nep-gro and nep-sbm
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Related works:
Working Paper: A Traffic-Jam Theory of Growth (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0442

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