Journal of Evolutionary Economics

, Volume 24, Issue 2, pp 421–448 | Cite as

Innovation and finance: a stock flow consistent analysis of great surges of development

  • Alessandro Caiani
  • Antoine Godin
  • Stefano Lucarelli
Regular Article


The present work aims at contributing to the recent stream of literature which attempts to link the Neo-Schumpeterian/Evolutionary and the Post-Keynesian theory. The paper adopts the Post-Keynesian Stock Flow Consistent modeling approach to analyze the process of development triggered by the emergence of a new-innovative productive sector into the economic system. The model depicts a multi-sectorial economy composed of consumption and capital goods industries, a banking sector and two households sectors: capitalists and wage earners. Furthermore, it provides an explicit representation of the stock market. In line with the Schumpeterian tradition, our work highlights the cyclical nature of the development process and stresses the relevance of the finance-innovation nexus, analyzing the feed-back effects between the real and financial sides of the economic system. In this way we aim at setting the basis of a comprehensive and coherent framework to study the relationship between technological change, demand and finance along the structural change process triggered by technological innovation.


Schumpeter Innovation Stock flow consistent models Monetary circuit 

JEL Classifications

E11 E32 O31 


  1. Aghion P, Howitt PW (2009) The economics of growth. The MIT Press, CambridgeGoogle Scholar
  2. Bhaduri A (1972) Unwanted amortisation funds. Econ J 82(326):674–677CrossRefGoogle Scholar
  3. Brainard WC, Tobin J (1968) Am Econ Rev 58(2):99–122Google Scholar
  4. Brown JR, Fazzari SM, Petersen BC (2009) Financing innovation and growth: cash flow, external Equity, and the 1990s R&D boom. J Finance 64(1):151–185CrossRefGoogle Scholar
  5. Brown JR, Petersen B (2009) Why has the investment-cash flow sensitivity declined so sharply? rising r&d and equity market developments. J Bank Finance 33-5:971–984CrossRefGoogle Scholar
  6. Castellacci F (2008) Innovation and the competitiveness of industries: comparing the mainstream and the evolutionary approaches. Technol Forecast Soc Chang 75(7):984–1006CrossRefGoogle Scholar
  7. Caverzasi E, Godin A (2013) Stock-flow consistent modeling trough the ages. Working Papers 745, Levy Economics Institute of Bard CallegeGoogle Scholar
  8. Ciarli T, Lorentz A, Savona M, Valente M (2010) The effect of consumption and production structure growth and distribution. A micro to macro model. Metroeconomica 61(1):180–218CrossRefGoogle Scholar
  9. Dosi G (1982) Technological paradigms and technological trajectories: a suggested interpretation of the determinants and directions of technical change. Res Policy 11(3):147–162CrossRefGoogle Scholar
  10. Dosi G (1990) Finance, innovation and industrial change. J Econ Behav Organ 13(3)Google Scholar
  11. Dosi G, Fagiolo G, Napoletano M, Roventini A (2013) Income distribution, credit and fiscal policies in an agent-based keynesian model. J Econ Dyn Control 37-8:1598–1625CrossRefGoogle Scholar
  12. Dosi G, Fagiolo G, Roventini A (2010) Schumpeter meeting keynes: a policy-friendly model of endogenous growth and business cycles. J Econ Dyn Control 34(9):1748–1767CrossRefGoogle Scholar
  13. Farmer J, Geanakoplos J (2009) The virtues and vices of equilibrium and the future of financial economics. Complexity 14-3:11–38CrossRefGoogle Scholar
  14. Foley D (1975) On two specifications of asset equilibrium in macroeconomic models. J Polit Econ 83-2(2):303–324CrossRefGoogle Scholar
  15. Freeman C, Perez C (1988) Structural crises of adjustment, business cycles and investment behaviour. In: Dosi G, Freeman C, Nelson R, Silverberg G, Soete L (eds) Technical change and economic theory. Pinter, London and New York, pp 38–66Google Scholar
  16. Godley W, Lavoie M (2007) Monetary economics an integrated approach to credit, money, income, production and wealth. Palgrave MacMillan, New YorkGoogle Scholar
  17. Graziani A (2003) The monetary theory of production. Cambridge University Press, CambridgeCrossRefGoogle Scholar
  18. Greenwald BC, Stiglitz JE (1993) Financial market imperfections and business cycles. Q J Econ 108(1):77–114CrossRefGoogle Scholar
  19. Hakim C (1989) Identifying fast growth small firms. Employment Gazette 27:29–41Google Scholar
  20. Hubbard R (1998) Capital-market imperfections and investment. J Econ Lit 36-1:193–225Google Scholar
  21. Jarvis R (2000) Finance and the small firm. In: Carter S, Jones-Evans D (eds) Enterprise and small business: principles, practice and policy. FT Prentice HallGoogle Scholar
  22. King R, Levine R (1993a) Finance and growth: Schumpeter might be right. Q J Econ 108:717–738CrossRefGoogle Scholar
  23. King R, Levine R (1993b) Finance, entrepreneurship, and growth: Theory and evidence. J Monet Econ 32:513–542CrossRefGoogle Scholar
  24. King RG, Rebelo ST (1999) Resuscitating real business cycles. Handb Macroecon 1:927–1007CrossRefGoogle Scholar
  25. Lavoie M (1992) Foundations of Post-Keynesian economic analysis. Edward Elgar, AldershotGoogle Scholar
  26. Lazonick W, Mazzucato M, Nightingale P, Parris S (2010) Finance, innovation & growth - state of art report. Finnov Discussion Paper 1.6:44Google Scholar
  27. Le Heron E, Rochon L-P, Olawoye SY (2012) Financial crisis, state of confidence and economic policies in a post-keynesian stock-flow consistent model Monetary policy and central banking - new directions in post-keynesian theory. Edward ElgarGoogle Scholar
  28. Levine R (2005) Finance an growth: theory and evidence. In: Aghion P, Durlauf SN (eds) Handbook of economic growth. ElsevierGoogle Scholar
  29. Mankiw NG, Romer DH (1991) New Keynesian economics, vol 2. MIT press, CambridgeGoogle Scholar
  30. Mayer G (1990) Financial systems, corporate finance, and economic development. In: Hubbard R (ed) Asymmetric information, corporate finance, and investment. University of Chicago PressGoogle Scholar
  31. Mazzucato M (2003) Risk, variety and volatility: growth, innovation and stock prices in early industry evolution. J Evol Econ 13:491–512CrossRefGoogle Scholar
  32. Meyers S (1984) Capital structure puzzle. J Finance 39-3:575–592CrossRefGoogle Scholar
  33. Mina A, Lahr H, Hughes A (2011) The demand and supply of external finance for innovative firms. Finnov Discussion Paper 3.5:39Google Scholar
  34. Nelson R, Winter SG (1982) An evolutionary theory of economic change. Harvard University Press, CambridgeGoogle Scholar
  35. Pastor L, Veronesi P (2009) Technological revolutions and stock prices. Am Econ Rev 99-4:1451–1483CrossRefGoogle Scholar
  36. Perez C (2002) Technological revolutions and financial capital: the dynamics of bubbles and golden Ages. Elgar, CheltenhamCrossRefGoogle Scholar
  37. Perez C (2009) The double bubble at the turn of the century: technological roots and structural implications. Camb J Econ 33-4(4):779–805CrossRefGoogle Scholar
  38. Perez C (2010) Technological revolutions and techno-economic paradigms. Camb J Econ 34-1:185–202CrossRefGoogle Scholar
  39. Russo A, Catalano M, Gaffeo E, Gallegati M, Napoletano M (2007) Industrial dynamics, fiscal policy and r&d: Evidence from a computational experiment. J Econ Behav Organ 64(3):426–447CrossRefGoogle Scholar
  40. Saviotti PP, Pyka A (2004) Economic development by the creation of new sectors. J Evol Econ 14(1):1–35CrossRefGoogle Scholar
  41. Saviotti PP, Pyka A (2008) Product variety, competition and economic growth. J Evol Econ 18(3):323–347CrossRefGoogle Scholar
  42. Schumpeter JA (1912) The theory of economic development. Harvard University Press, Cambridge, MAGoogle Scholar
  43. Schumpeter JA (1939) Business cycle. A theoretical, historical and statistical analysis of the capitalist process. Abridged Edn., McGraw Hill, New YorkGoogle Scholar
  44. Stadler GW (1994) Real business cycles. J Econ Lit 32(4):1750–1783Google Scholar
  45. van Treeck T (2009) A synthetic, stock-flow consistent macroeconomic model of Financialisation. Camb J Econ 33(3):467–493CrossRefGoogle Scholar
  46. Verspagen B (2002) Evolutionary macroeconomics: a synthesis between neo-schumpeterian and post-keynesian lines of thought. The Electronic Journal of Evolutionary Modeling and Economic Dynamics, p 1007Google Scholar
  47. Vos E, Yeh Y, Carter S, Tagg S (2007) The happy story of small business financing. J Bank Finance 31-9:2648–2672CrossRefGoogle Scholar
  48. Zezza G (2008) U.S. Growth, the housing market, and the distribution of income. J Post Keynesian Econ 30(3):375–401CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2014

Authors and Affiliations

  • Alessandro Caiani
    • 1
  • Antoine Godin
    • 2
  • Stefano Lucarelli
    • 3
  1. 1.Department of Economic and Social SciencesMarche Polytechnic UniversityAnconaItaly
  2. 2.Kemmy Business SchoolUniversity of LimerickLimerickIreland
  3. 3.Dipartimento di Scienze Aziendali, Economiche e Metodi QuantitativiUniversity of BergamoBergamoItaly

Personalised recommendations