Financial Frictions at Entry, Average Firm Size, and Productivity

Pedro Bento and Ashantha Ranasinghe

No 2021-7, Working Papers from University of Alberta, Department of Economics

Abstract: We document cross country evidence showing financially under developed economies have lower productivity investment, a smaller employment share of large firms, and smaller average firm size within sectors. We present a tractable model with heterogeneous entrepreneurs that face financial constraints limiting investment at entry. The model can be solved analytically, making clear predictions for the impact of constraints on outcomes of interest consistent with the evidence we document. The calibrated model can account for about one fifth of the variance in observed average firm size and TFP across countries, all substantial relative to the literature.

Keywords: financial development; firm size; investment; aggregate productivity (search for similar items in EconPapers)
JEL-codes: O10 O14 O41 O43 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2021-08-31
New Economics Papers: this item is included in nep-bec, nep-ent, nep-fdg, nep-isf and nep-sbm
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Working Paper: Financial Frictions at Entry, Average Firm Size, and Productivity (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:albaec:2021_007

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