R&D financing and growth

Luca, Spinesi and Mario, Tirelli (2018): R&D financing and growth.

Abstract

R&D investment are an important engine of growth and development. Yet economists have often claimed underinvestment, also due to the asymmetric information between inside investors and outside investors and financiers, and the consequent capital and financial market imperfections. Some recent empirical evidence robustly supports these claims. Motivated by this evidence, we study the effects of asymmetric information and financial frictions on R&D investment within a dynamic GE economy of Shumpeterian tradition. The model and equilibrium concept we propose is rich enough to represent investment and innovation decisions, financial decisions and decisions regarding technology adoption/diffusion through patent licensing. Qualitative predictions indicate that the financial policy of the firm matters in explaining both entrepreneurial production and innovation decisions. Young R&D-intensive firms might rely more heavily on internal sources and equity than on debt financing, relatively to what would otherwise be observed in absence of frictions. These findings contribute to explain the type of financial hierarchy recently highlighted in the empirical studies.

• Item Type: MPRA Paper
• Language: English
• Keywords: Innovation, R&D, Shumpeterian growth, firm financial structure, asymmetric information, financial markets, general equilibrium.
• Subjects: D - Microeconomics > D5 - General Equilibrium and Disequilibrium; D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D53 - Financial Markets; D - Microeconomics > D9 - Intertemporal Choice > D92 - Intertemporal Firm Choice, Investment, Capacity, and Financing; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O34 - Intellectual Property and Intellectual Capital; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity

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