A Multi-industry Model of Growth with Financing Constraints

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.
Publication date: May 2009
ISBN: 9781451872668
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Financial development , industry growth , R&amp , #x0026 , D intensity , external finance dependence , convergence dynamics , structural change , r &amp , d , r &amp , d intensity , equation , r &amp , d intensive industries , standard errors , d Intensity

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