A Multi-industry Model of Growth with Financing Constraints
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Summary:
This paper develops a multi-industry growth model in which firms require external funds to conduct productivity-enhancing R&D. The cost of research is industry-specific. The tightness of financing constraints depends on the level of financial development and on industry characteristics. Over time, a financially constrained economy may converge to the growth path of a frictionless economy, so long as an industry with the fastest expanding technological frontier does not permanently fall behind due to low R&D. The model’s industry dynamics map into a differences-in-differences regression, in which industry growth depends on the interaction between financial development and industry level R&D intensity.
Series:
Working Paper No. 2009/119
Subject:
Financial sector development Industrial productivity Labor Productivity Self-employment
English
Publication Date:
May 1, 2009
ISBN/ISSN:
9781451872668/1018-5941
Stock No:
WPIEA2009119
Pages:
52
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