 Credit constraints, selection and productivity growthGiammario Impullitti Economic Modelling, 2022, vol. 111, issue C Abstract: This paper presents a tractable model of innovation and growth with firm heterogeneity and financial frictions. The model is used to uncover new mechanisms linking access to credit and productivity growth, highlighting the role of selection and firm heterogeneity emerging from recent empirical findings. Three key results emerge. First, better access to credit to finance fixed operating costs allows less productive firms to survive, thereby depressing the average level of productivity and, via its effect on innovation incentives, aggregate productivity growth. Second, cheaper access to credit decreases these costs, thereby freeing resources to increase production and firm size. Larger firm size leads to more innovation and growth. The overall impact of finance on growth hinges on the relative strength of the selection and market size effect. Third, cheaper access to credit to finance the cost of entry leads to stronger product market competition which, in turn, foster stronger selection, innovation and growth. Keywords: Credit constraints; Heterogeneous firms; Innovation; Endogenous growth; Endogenous markups (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:111:y:2022:i:c:s0264999322000438 DOI: 10.1016/j.econmod.2022.105797 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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