Finance, Investment and Innovation: Empirical and Theoretical Challenges

Some specific characteristics of innovation (such as vertical product differentiation, the strategic role of technological standards or the quasi public good nature of technological knowledge) introduce additional complexity to the standard problem of the mismatch between investment projects and financial resources needed to realise them. Does an optimal design of rules and intermediaries to tackle this problem exists? And are existing domestic financial systems next to this optimal design? The paper presents theoretical and empirical research findings on several issues related to this question. These issues range from the interaction between market structure, stock market value and innovation financing to theoretical models and empirical tests of multiple equilibria explaining how country fundamentals evolve into equilibria of high (low) development of financial institutions and high (low) real growth The paper has been prepared under the Fifth EU Programme, Key Action, Improving the Socioeconomic Knowledge base