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Financing Constraints, Radical versus Incremental Innovation, and Aggregate Productivity

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  • Andrea Caggese

Abstract

I provide new empirical evidence on a negative relation between financial frictions and productivity growth over firms’ life cycle. I show that a model of firm dynamics with incremental innovation cannot explain such evidence. However also including radical innovation, which is very risky but potentially very productive, allows for joint replication of several stylized facts about the dynamics of young and old firms and of the differences in productivity growth in industries with different degrees of financing frictions. These frictions matter because they act as a barrier to entry that reduces competition and the risk taking of young firms.

Suggested Citation

  • Andrea Caggese, 2015. "Financing Constraints, Radical versus Incremental Innovation, and Aggregate Productivity," Working Papers 865, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:865
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    File URL: https://www.barcelonagse.eu/sites/default/files/working_paper_pdfs/865.pdf
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Financing Constraints, Radical versus Incremental Innovation, and Aggregate Productivity
      by Christian Zimmermann in NEP-DGE blog on 2016-01-26 20:58:18

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    Cited by:

    1. Alessandra Bonfiglioli & Rosario Crinò & Gino Gancia, 2015. "Trade, finance and endogenous firm heterogeneity," Economics Working Papers 1502, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2017.

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