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Innovation, Finance, and Economic Growth: an agent based approach

Giorgio Ffagiolo, Daniele Giachini and Andrea Roventini ()
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Giorgio Ffagiolo: Scuola Superiore Sant'Anna Pisa Italy
Daniele Giachini: Scuola Superiore Sant'Anna Pisa Italy

No 2017-28, Documents de Travail de l'OFCE from Observatoire Francais des Conjonctures Economiques (OFCE)

Abstract: This paper extends the endogenous-growth agent-based model in Fagiolo and Dosi (2003) to study the finance growthnexus. 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. In- deed, 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 vs Exploitation; Endogenous Growth; Banking Sector; Finance Growth Nexus (search for similar items in EconPapers)
JEL-codes: C63 G21 O30 O21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-cmp, nep-fdg, nep-gro, nep-hme, nep-ino, nep-sbm and nep-tid
Date: 2017-11-27
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Working Paper: Innovation, Finance, and Economic Growth: An Agent-Based Approach (2017) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fce:doctra:1728

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