The paper analyses the role of capital structure of firm on industry dynamics. Empirical evidence shows that policy interventions can alter for some the frims�cost of the capital. As a result firms on average are overcapitalized with a low capital productivity. Moreover, the market in which capital is cheap seems to be able to reduce consistently the entry and the exit of firms: the competitive process is obscured and selection is sterilized. We argue that the distortions induced by an anomalous endowment of capital input can have two effects in the market: (a) A raise in firms� heterogeneity; (b) a distortion of the process of acquisition of technical progress. We used an agent based model to explore the issue. Firms in the model are heterogeneous bounded rational and endowed with a two inputs fixed coefficients technology. Technical progress is embodied in the new capital stock and modifies the combination of the two inputs. The cost of the capital input is one of the relevant parameter of the model. Each capital stock can have short (SL) or long life (LL). The policy interventions finance the LL investments so that its price will be on average lower than for SL. Firms have to choose in each period between two strategies: A cost reducing one�in the present choosing to invest in LL-, or a productivity augmenting one�as a stochastic outcome of the investment in SL. The model is programmed using SWARM platform and it is explored through Montecarlo simulations.
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