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A Multi-industry Model of Growth with Financing Constraints

  • Anna Ilyina
  • Roberto M. Samaniego

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.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/119.

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Length: 52
Date of creation: 01 May 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/119
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