Bank of Canada
234 Wellington, Ottawa, ON
Information about this author at RePEc
NBER Working Papers and Publications
|October 2011||Innovation and Growth with Financial, and other, Frictions|
with Cesaire Meh, Randall Wright: w17512
The generation and implementation of ideas, or knowledge, is crucial for economic performance. We study this process in a model of endogenous growth with frictions. Productivity increases with knowledge, which advances via innovation, and with the exchange of ideas from those who generate them to those best able to implement them (technology transfer). But frictions in this market, including search, bargaining, and commitment problems, impede exchange and thus slow growth. We characterize optimal policies to subsidize research and trade in ideas, given both knowledge and search externalities. We discuss the roles of liquidity and financial institutions, and show two ways in which intermediation can enhance efficiency and innovation. First, intermediation allows us to finance more transacti...