American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Financing Constraints, Radical versus Incremental Innovation, and Aggregate Productivity
American Economic Journal: Macroeconomics
vol. 11,
no. 2, April 2019
(pp. 275–309)
Abstract
I provide new empirical evidence on the negative relationship between financial frictions and productivity growth over a firm's life cycle. I show that a model of firm dynamics with incremental innovation cannot explain this evidence. However, further including radical innovation, which is very risky but potentially very productive, allows for the joint replication of several stylized facts about the dynamics of young and old firms and 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.Citation
Caggese, Andrea. 2019. "Financing Constraints, Radical versus Incremental Innovation, and Aggregate Productivity." American Economic Journal: Macroeconomics 11 (2): 275–309. DOI: 10.1257/mac.20160298Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- D25 Intertemporal Firm Choice: Investment, Capacity, and Financing
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L25 Firm Performance: Size, Diversification, and Scope
- L60 Industry Studies: Manufacturing: General
- O31 Innovation and Invention: Processes and Incentives