Lost in Transition: Financial Barriers to New Technologies

Philippe Aghion, Antonin Bergeaud, Maarten De Ridder and John Van Reenen

No 22137, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Advanced economies are reshaped by transitions from old to new technological paradigms. These transitions rely on complementary innovations that spread new technologies across industries. What happens when a financial crisis disrupts investment in these innovations? Using a Schumpeterian endogenous growth model with financial frictions, we show that investment in new technologies is more sensitive to tighter financial conditions than investment in mature technologies. The key mechanism is path dependence: firms build expertise in the technologies they previously developed, leading young firms to self-select into emerging technologies. As young firms are more financially constrained, shocks to financing disproportionately depress innovation in new technologies. We validate this mechanism using causal evidence on green patenting by German firms around the Global Financial Crisis. The aggregate fraction of patenting in carbon reducing technologies stagnated after the crisis. Quantifying our model using the causal estimates from the micro data implies that the slowdown of the sorting of young firms into new technologies accounts for about a fifth of the macro trends in such green innovation.

Keywords: Endogenous growth; Technological progress; Climate change; Financial frictions; Innovation; Creative destruction (search for similar items in EconPapers)
JEL-codes: G01 G32 O31 O33 Q55 (search for similar items in EconPapers)
Date: 2026-11
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