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

Federal Reserve Board

Multiple version iconThere are 3 versions of this paper

Date Written: March 13, 2018

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.

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: https://ssrn.com/abstract=2892747 or http://dx.doi.org/10.2139/ssrn.2665177

Semyon Malamud (Contact Author)

Ecole Polytechnique Federale de Lausanne ( email )

Lausanne, 1015
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Swiss Finance Institute

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

Francesca Zucchi

Federal Reserve Board ( email )

20th and C Street NW
Washington, DC 20551
United States

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