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Innovation, Finance, and Economic Growth: an agent-based model

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

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Abstract: This paper extends the endogenous-growth agent-based model in Fagiolo and Dosi (2003) to study the financegrowth 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. 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 nexu

Keywords: Agent based model; Innovation; Exploration vs 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)
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
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