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Financial Frictions and the Persistence of History: A Quantitative Exploration

  • Francisco J. Buera
  • Yongseok Shin

We quantitatively analyze the role of financial frictions and resource misallocation in explaining development dynamics. Our model economy with financial frictions converges to the new steady state slowly after a reform triggers efficient reallocation of resources; the transition speed is half that of the conventional neoclassical model. Furthermore, in the model economy, investment rates and total factor productivity are initially low and increase over time. We present data from the so-called miracle economies on the evolution of macro aggregates, factor reallocation, and establishment size distribution that support the aggregate and micro-level implications of our theory.

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File URL: http://dx.doi.org/10.1086/670271
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File URL: http://dx.doi.org/10.1086/670271
Download Restriction: Access to the online full text or PDF requires a subscription.

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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 121 (2013)
Issue (Month): 2 ()
Pages: 221 - 272

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Handle: RePEc:ucp:jpolec:doi:10.1086/670271
Contact details of provider: Web page: http://www.journals.uchicago.edu/JPE/

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  1. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
  2. Gérard Roland, 2004. "Transition and Economics: Politics, Markets, and Firms," MIT Press Books, The MIT Press, edition 1, volume 1, number 026268148x, March.
  3. Jeong, Hyeok & Townsend, Robert M., 2008. "Growth And Inequality: Model Evaluation Based On An Estimation-Calibration Strategy," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S2), pages 231-284, September.
  4. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
  5. Bartelsman, Eric & Haltiwanger, John C. & Scarpetta, Stefano, 2009. "Cross-Country Differences in Productivity: The Role of Allocation and Selection," IZA Discussion Papers 4578, Institute for the Study of Labor (IZA).
  6. Selahattin Imrohoroglu & Ayse Imrohoroglu & Kaiji Chen, 2006. "The Japanese Saving Rate," American Economic Review, American Economic Association, vol. 96(5), pages 1850-1858, December.
  7. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
  8. Wontack Hong, 2002. "Catch-up and Crisis in Korea," Books, Edward Elgar Publishing, number 2631.
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