Inflation, Liquidity and Innovation

Evers, Michael ; Niemann, Stefan ; Schiffbauer, Marc

World Bank, Washington, DC

关键词: INFLATION;    LIQUIDITY;    INNOVATION;    INVESTMENT;    TECHNOLOGY;   

DOI  :  10.1596/1813-9450-8436
RP-ID  :  WPS8436

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

This paper presents a simple model withfinancial frictions where inflation increases the cost facedby firms holding liquid assets to hedge risky productionagainst expenditure shocks. Inflation tilts firms'technology choice away from innovative activities and towardsafer but return-dominated ones, and therefore reduceslong-run growth. The theory makes specific predictions abouthow the severity of this adverse effect depends on industrycharacteristics. These predictions are tested with novelharmonized firm-level data from 139 developing countries,overcoming small sample problems constraining previous work.The analysis finds that inflation affects the compositionbut not the overall quantity of investment. A one percentagepoint increase in inflation reduces the establishment-levelprobability of innovation by 4.3 percent but does not affecttotal investment. Moreover, innovating firms display astronger dependence on liquid assets, which, in turn, arenegatively related to inflation. Generalizeddifference-in-differences estimations corroborate thesector-specific predictions of the theoretical model.