Liquidity, Innovation, and Endogenous Growth

72 Pages Posted: 4 Jan 2017 Last revised: 7 Dec 2018

See all articles by Semyon Malamud

Semyon Malamud

Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Francesca Zucchi

European Central Bank

Multiple version iconThere are 3 versions of this paper

Date Written: March 13, 2018


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.

Keywords: Innovation; Cash management; Financing frictions; Endogenous growth

JEL Classification: G31; G32; O31; O40

Suggested Citation

Malamud, Semyon and Zucchi, Francesca, Liquidity, Innovation, and Endogenous Growth (March 13, 2018). Swiss Finance Institute Research Paper No. 15-41, Available at SSRN: or

Semyon Malamud (Contact Author)

Ecole Polytechnique Federale de Lausanne ( email )

Lausanne, 1015

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

Francesca Zucchi

European Central Bank ( email )

Sonnemannstrasse 20
Frankfurt am Main, 60314

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