Financial Frictions at Entry, Average Firm Size, and Productivity

Bento Pedro () and Ranasinghe Ashantha ()
Additional contact information
Bento Pedro: Department of Economics, Texas A&M University, 254 West Campus Social Sciences Building, College Station, 77843, TX, USA
Ranasinghe Ashantha: Department of Economics, University of Alberta, 8-14 Tory Building, Edmonton, T6G 2H4, AB, Canada

The B.E. Journal of Macroeconomics, 2025, vol. 25, issue 1, 81-120

Abstract: We document cross country-evidence showing financially under-developed economies have lower productivity investment, a smaller employment share of large firms, and smaller average firm size within sectors. We present a tractable model with heterogeneous entrepreneurs that face financial constraints limiting investment at entry. The model can be solved analytically, making clear predictions for the impact of constraints on outcomes of interest consistent with the evidence we document. The calibrated model can account for about one fifth of the variance in observed average firm size and TFP across countries, all substantial relative to the literature.

Keywords: financial development; firm size; investment; aggregate productivity (search for similar items in EconPapers)
JEL-codes: O1 O14 O41 O43 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/bejm-2024-0051 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:bejmac:v:25:y:2025:i:1:p:81-120:n:1006

Ordering information: This journal article can be ordered from
https://www.degruyte ... ournal/key/bejm/html

DOI: 10.1515/bejm-2024-0051

Access Statistics for this article

The B.E. Journal of Macroeconomics is currently edited by Arpad Abraham and Tiago Cavalcanti

More articles in The B.E. Journal of Macroeconomics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().