Economic Growth, Business Cycle, Technological Change and Financing

This paper investigates the relationship between economic growth, business cycle and firms' financing in an innovative environment. The process is investigated using an agent-based model featuring 100 firms interacting with each other and the banking system, which generates hedge, speculative and Ponzi financing regimes as emergent properties of the economy. Two technological regimes are compared: low and high technological development. The emergence of cycles is not predetermined, but rather stems from the complex nature of the interactions at the agent-agent and agent-macro environment levels. The building of an integrated theory of cycle and growth, innovation and financing can be carried out by following an agent-based approach, as economic growth and business cycles are not exclusive attributes either of the agent (firm) or the macroeconomic environment alone, but rather result from the continuing interactions among all of the constituent parts of the system. The paper also carries out an econometric analysis of the data generated artificially by the simulations. It is shown that, although the model is specified with finite difference equations, which imply predetermined temporal causality relations, the emergent results generate bidirectional causality (in the sense of Granger) among innovation, financial fragility, business cycles and economic growth, as amply supported by the existing empirical evidence.