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Credit Reallocation and Technological Change

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  • Mehmet Furkan Karaca, Mehmet Furkan Karaca

    (Michigan State University)

  • Minetti, Raoul

    (Michigan State University, Department of Economics)

  • Murro, Pierluigi

    (Luiss University)

Abstract

This paper studies the dynamic process of credit reallocation and its interaction with aggregate innovative activity. To draw out theoretical predictions, we build a discrete time model to investigate the consequences of lenders’ decision on reallocating credit and borrowers’ choice on innovating. We show that an escalation in credit reallocation disrupts innovative activities. Using a novel dataset on bank balance sheets and the aggregate number of patents for Italy, we examine the effect of credit reallocation on innovation. We construct measures of credit reallocation and collect data on the aggregate number of patents as a measure of innovative activity across Italian provinces. We find that an increase in credit reallocation reduces innovative activity while aggregate credit growth helps to expand it.

Suggested Citation

  • Mehmet Furkan Karaca, Mehmet Furkan Karaca & Minetti, Raoul & Murro, Pierluigi, 2022. "Credit Reallocation and Technological Change," Working Papers 2022-6, Michigan State University, Department of Economics.
    • Handle: RePEc:ris:msuecw:2022_006
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit Market; Credit Reallocation; Technological Change; Innovation;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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