Financial Frictions and the Persistence of History: A Quantitative Exploration

Francisco Buera and Yongseok Shin

No 16400, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We quantify the role of financial frictions and the initial misallocation of resources in explaining development dynamics. Following a reform that triggers efficient reallocation of resources, our model economy with financial frictions converges slowly to the new steady state--it takes twice as long to cover half the distance to the steady state as the neoclassical growth model. Investment rates and total factor productivity start out low and rise over time. These model dynamics are endogenously determined by the extent of initial resource misallocation and the degree of financial frictions. We present data from post-war miracle economies on the evolution of macro aggregates, factor reallocation, and establishment size distribution, which support the aggregate and micro-level implications of our theory.

JEL-codes: E21 E22 E44 O11 O16 O25 O4 O53 (search for similar items in EconPapers)
Date: 2010-09
Note: EFG
References: View complete reference list from CitEc
Citations: View citations in EconPapers (41)

Published as Francisco J. Buera & Yongseok Shin, 2013. "Financial Frictions and the Persistence of History: A Quantitative Exploration," Journal of Political Economy, University of Chicago Press, vol. 121(2), pages 221 - 272.

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Related works:
Journal Article: Financial Frictions and the Persistence of History: A Quantitative Exploration (2013)
Working Paper: Financial Frictions and the Persistence of History: A Quantitative Exploration (2007)
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