Endogenous growth, firm heterogeneity and the long-run impact of financial crises

Tom Schmitz

European Economic Review, 2021, vol. 132, issue C

Abstract: How does firm heterogeneity affect the long-run consequences of financial crises? To answer this question, I introduce aggregate shocks and differences in the innovative potential of firms into a Schumpeterian endogenous growth model. Firm heterogeneity amplifies the effects of a financial crisis on aggregate innovation, because small firms are both relatively more innovative than large firms and hit harder by the crisis. A calibration using manufacturing data from Spain shows that a representative-firm model which ignores these mechanisms underestimates the long-run output losses due to the 2008-2013 crisis by around 40%.

Keywords: R&D; Innovation; Heterogeneous firms; Financial crisis; Size distribution; Endogenous persistence; Spain (search for similar items in EconPapers)
JEL-codes: E32 O31 O33 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Endogenous Growth, Firm Heterogeneity and the Long-run Impact of Financial Crises (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:132:y:2021:i:c:s0014292120302671

DOI: 10.1016/j.euroecorev.2020.103637

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