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research article
Liquidity, Innovation, And Endogenous Growth
May 1, 2019
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.
Type
research article
Authors
Publication date
2019-05-01
Published in
Volume
132
Issue
2
Start page
519
End page
541
Peer reviewed
REVIEWED
EPFL units
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Available on Infoscience
October 15, 2018
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