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12.03.18 - Professor Semyon Malamud from the [email protected], and Dr. Francesca Zucchi who received her Ph.D at the [email protected] and is currently Economist at the Federal Reserve Board of Governors have a new paper accepted for publication in the Journal of Financial Economics. The title of their article is "Liquidity, Innovation, and Endogenous Growth".

Abstract

We build a model of endogenous, innovation-driven growth in which innovative firms have costly access to outside financing and hoard cash reserves to maintain financial flexibility. We show that financing frictions slow down Schumpeterian creative destruction by discouraging entry. As a result, financing frictions importantly affect the composition of growth, by reducing the contribution of entrants but spurring the contribution of incumbents. We investigate the net impact of these countervailing effects on the equilibrium growth rate and welfare.

Author:Carole BonardiSource:Swiss Finance Institute
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