| Abstract: |
Schumpeter, a century ago, argued that boom-and-bust cycles are intrinsically
related to the functioning of a capitalistic economy. These cycles, inherent
to the rise of innovation, are an unavoidable consequence of the way in which
markets evolve and assimilate successive technological revolutions.
Furthermore, Schumpeter's analysis stressed the fundamental role played by
finance in fostering innovation, in defining bank credit as the "monetary
complement" of innovation. Nevertheless, we feel that the connection between
innovation and firm financing has seldom been examined from a theoretical
standpoint, not only by economists in general, but even within the
Neo-Schumpeterian research line. Our paper aims at analyzing both the
long-term structural change process triggered by innovation and the related
financial dynamics inside the coherent framework provided by the stock-flow
consistent (SFC) approach. The model presents a multisectoral economy composed
of consumption and capital goods industries, a banking sector, and two
household sectors: capitalists and wage earners. The SFC approach helps us to
track the flows of funds resulting from the rise of innovators in the system.
The dynamics of prices, employment, and wealth distribution among the
different sectors and social groups is analyzed. Above all, the essential role
of finance in fostering innovation and its interaction with the real economy
is underlined. |