Financial Frictions and Total Factor Productivity: Accounting for the Real Effects of Financial Crises

Sangeeta Pratap and Carlos Urrutia ()

No 1104, Working Papers from Centro de Investigacion Economica, ITAM

Abstract: Financial crises in emerging economies are accompanied by a large fall in total factor productivity. We explore the role of financial frictions in exacerbating the misallocation of resources and explaining this drop in TFP. We build a two-sector model of a small open economy with a working capital constraint to the purchase of intermediate goods. The model is calibrated to Mexico before the 1995 crisis and subject to an unexpected shock to interest rates. The financial friction generates an endogenous fall in TFP and output and can explain more than half of the fall in TFP and 74 percent of the fall in GDP per worker.

Keywords: Financial crises; total factor productivity; financial frictions (search for similar items in EconPapers)
JEL-codes: E32 F41 G01 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2011
New Economics Papers: this item is included in nep-dge, nep-eff and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Financial Frictions and Total Factor Productivity: Accounting for the Real Effects of Financial Crises (2012)
Working Paper: Financial Frictions and Total Factor Productivity: Accounting for the Real Effects of Financial Crises (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:cie:wpaper:1104

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