Growth Model with Financial Deepening and Productivity Heterogeneity

Quoc Hung Nguyen

The Japanese Economic Review, 2019, vol. 70, issue 1, 123-140

Abstract: This paper studies the effects of financial deepening on growth dynamics and productivity in an economy where heterogeneous entrepreneurs face endogenous borrowing constraints. Quantitative results from a calibrated model suggest that 38% of Japan's total factor productivity from 1961 to 1991 can be explained by the financial deepening effects and the convergence speed is 29% slower than that implied by neoclassical models. The present paper also theoretically shows that an economy with a higher degree of productivity heterogeneity is more likely to avoid the poverty trap and converge with a slower speed to its steady state.

Date: 2019
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https://doi.org/10.1111/jere.12180

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