Finance and Development: A Tale of Two Sectors †
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This article developed a model co-determining aggregate total factor productivity (TFP), sectoral TFP, and scales across industrial sectors and found that financial frictions disproportionately affect TFP in tradable sectors where production requires larger costs.Abstract:
Explaining levels of economic development hinges on explaining TFP dierences across coun- tries. In poor countries, total factor productivity (TFP) is particularly low in sectors producing tradable goods. We document that an important dierence between tradable and non-tradable sectors is their average establishment size: Tradable establishments operate at much larger scales. We develop a model co-determining aggregate TFP, sectoral TFP, and scales across industrial sectors. In our model, …nancial frictions disproportionately aect TFP in tradable sectors where production requires larger …xed costs. Our quantitative exercises show that …- nancial frictions explain a substantial part of the observed cross-country relationship between aggregate TFP, sectoral TFP, and output per worker.read more
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Finance and Misallocation: Evidence from Plant-Level Data
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TL;DR: In this article, the role of financial frictions in determining total factor productivity (TFP) was evaluated using producer-level data, and a model of establishment dynamics was proposed to reduce TFP through two channels: finance frictions distort entry and technology adoption decisions.
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Productivity Losses from Financial Frictions: Can Self-Financing Undo Capital Misallocation?
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References
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