Amirov A.
The literature on finance and innovation treats the relationship as monotone: more capital directed at innovative firms should raise long-run productivity growth. This paper shows why that need not hold. A Schumpeterian growth model is developed in which financiers screen heterogeneous candidate innovations before funding them, subject to a genuine cost-speed tradeoff: stricter screening raises the average quality of funded projects but slows the rate at which capital reaches the innovation frontier. The balanced-growth rate is a strictly concave, single-peaked function of screening intensity — an Allocation Frontier — with a technologically determined peak and a decentralized equilibrium that always falls strictly short of it, by an amount governed by the cost of screening relative to the value of getting it right. A calibration combining OECD productivity data, the markup literature, and an illustrative target for screening intensity finds this shortfall costs the calibrated economy roughly four percent of its attainable growth rate. Comparative statics further show that “more innovation finance” is not one thing: cheaper screening and greater entrant heterogeneity both raise growth by moving the economy toward its own frontier peak, while a larger raw flow of candidates raises growth by moving it away from an unchanging one.