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