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Innovation, finance, and economic growth: an agent-based approach

Giorgio Fagiolo (), Daniele Giachini () and Andrea Roventini
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Daniele Giachini: Scuola Superiore Sant’Anna

Journal of Economic Interaction and Coordination, 2020, vol. 15, issue 3, No 7, 703-736

Abstract: Abstract This paper extends the endogenous growth agent-based model in Fagiolo and Dosi (Struct Change Econ Dyn 14(3):237–273, 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.

Keywords: Agent-based models; Innovation; Exploration versus exploitation; Endogenous growth; Banking sector; Finance–growth nexus (search for similar items in EconPapers)
JEL-codes: C63 G21 O30 O31 (search for similar items in EconPapers)
Date: 2020
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Working Paper: Innovation, Finance, and Economic Growth: an agent based approach (2017) Downloads
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DOI: 10.1007/s11403-019-00258-1

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