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13:00 - 14:00 6 June 2013

Financial Frictions, Barriers to Entry, and Development Trajectories


Ricardo Lecture Theatre | Drayton House (link Map)
30 Gordon Street | London | WC1H 0AN | United Kingdom

Open to: Academic | Student
Ticketing: Open

Speaker information

Christian Moser, Princeton

This paper addresses two open questions in the macro-development literature: First, why does total factor productivity (TFP) and thus per capita income differ so vastly across countries? Second, why do many developing countries converge slowly to their new steady-state relative to the predictions of the neoclassical growth model? I build a model of establishment dynamics with occupational choice as in Lucas (1978), incorporating financial frictions and barriers to entry as the two central drivers of resource misallocation. I use this framework to address the two open questions and find that financial frictions and barriers to entry have significant joint effects on the industry entry rate, wage level, and aggregate TFP at all stages of an economy's development trajectory. Entrepreneurs' occupational choice takes the form of an optimal stopping time which leads to hysteresis and inefficient resource allocation both along transition dynamics and in the long-run.


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