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Entrepreneurship, growth and productivity with bubbles

Lise Clain-Chamosset-Yvrard (), Xavier Raurich () and Thomas Seegmuller ()
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Thomas Seegmuller: Aix-Marseille Univ, CNRS, AMSE, Marseille, France., https://www.amse-aixmarseille.fr/en/members/seegmuller

No 2106, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: Entrepreneurship, growth and total factor productivity are larger when there is a financial bubble. We explain these facts using a growth model with financial bubbles in which individuals face heterogeneous wages and returns on productive investment. The heterogeneity in the return of in- vestment separates individuals between savers and entrepreneurs. Savers buy financial assets, which are deposits or a financial bubble. Entrepreneurs incur in a start-up cost and borrow to invest in productive capital. The bubble provides liquidities to credit-constrained entrepreneurs. These liquidities increase investment and entrepreneurship when the start- up cost is large enough, which explains that growth and entrepreneurship can be larger with bubbles. Finally, productivity can be larger when the bubble further increases the investment of more productive entrepreneurs. This can occur when the return of investment is correlated with wages.

Keywords: bubble; entrepreneurship; growth; productivity (search for similar items in EconPapers)
JEL-codes: E22 E44 G12 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2021-02
New Economics Papers: this item is included in nep-eff, nep-ent and nep-mac
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