Financial constraints and economic development: the role of firm productivity investment

Galina Vereshchagina

Review of Economic Dynamics, 2023, vol. 51, 322-342

Abstract: This paper demonstrates that accounting for firms' endogenous productivity growth over lifecycle plays an important role in understanding the link between financial and economic development. It incorporates firm productivity investment into a span-of-control model, and compares the effects of firm financing constraints arising in this model to the effects of the same constraints in the model in which firm productivity growth is assumed to be exogenous. It finds that, depending on the severity of firm financing constraints, endogenizing firm productivity growth increases the adverse effects of the constraints on steady state output by 1.5-3 times, both due to a large decrease in average productivity and due to a bigger equilibrium effect on capital used in production. (Copyright: Elsevier)

Keywords: financing constraints; innovative investment; firm dynamics; economic development; misallocation (search for similar items in EconPapers)
JEL-codes: D14 E22 L11 L26 O16 O3 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://dx.doi.org/10.1016/j.red.2023.01.005
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See https://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Financial constraints and economic development: the role of firm productivity investment" (2023)
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:red:issued:20-293

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2023.01.005

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().