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Endogenous growth, firm heterogeneity and the long-run impact of financial crises

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  • Schmitz, Tom

Abstract

How does firm heterogeneity affect the long-run consequences of financial crises? To answer this question, I introduce aggregate shocks and differences in the innovative potential of firms into a Schumpeterian endogenous growth model. Firm heterogeneity amplifies the effects of a financial crisis on aggregate innovation, because small firms are both relatively more innovative than large firms and hit harder by the crisis. A calibration using manufacturing data from Spain shows that a representative-firm model which ignores these mechanisms underestimates the long-run output losses due to the 2008-2013 crisis by around 40%.

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  • Schmitz, Tom, 2021. "Endogenous growth, firm heterogeneity and the long-run impact of financial crises," European Economic Review, Elsevier, vol. 132(C).
    • Handle: RePEc:eee:eecrev:v:132:y:2021:i:c:s0014292120302671
    DOI: 10.1016/j.euroecorev.2020.103637
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    Cited by:

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    3. de Ridder, Maarten, 2016. "Investment in productivity and the long-run effect of financial crises on output," LSE Research Online Documents on Economics 86180, London School of Economics and Political Science, LSE Library.
    4. Miguel Leon-Ledesma & Katsuyuki Shibayama, 2023. "(Endogenous) Growth Slowdowns," Studies in Economics 2303, School of Economics, University of Kent.
    5. Dario Bonciani & David Gauthier & Derrick Kanngiesser, 2023. "Slow Recoveries, Endogenous Growth and Macro-prudential Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 698-715, December.
    6. Oana Peia, 2017. "Banking Crises and Investments in Innovation," Working Papers 201727, School of Economics, University College Dublin.
    7. Ambrocio, Gene & Juselius, Mikael, 2020. "Dealing with the costs of the COVID-19 pandemic – what are the fiscal options?," BoF Economics Review 2/2020, Bank of Finland.
    8. Dario Bonciani & David Gauthier & Derrick Kanngiesser, 2023. "Slow Recoveries, Endogenous Growth and Macro-prudential Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 698-715, December.
    9. Oana Peia & Davide Romelli, 2019. "Did bank lending stifle innovation in Europe during the Great Recession?," Working Papers 201926, School of Economics, University College Dublin.
    10. Garcia-Lazaro, Aida & Mistak, Jakub & Gulcin Ozkan, F., 2021. "Supply chain networks, trade and the Brexit deal: a general equilibrium analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).

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    More about this item

    Keywords

    R&D; Innovation; Heterogeneous firms; Financial crisis; Size distribution; Endogenous persistence; Spain;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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