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Buera, Francisco J.,
Joseph P. Kaboski, and
Yongseok Shin. 2011. "Finance and Development: A Tale of Two Sectors."
,
101(5): 1964-2002.
Show Article Details
DOI: 10.1257/aer.101.5.1964
Abstract:We develop a quantitative framework to explain the relationship between aggregate/sector-level total factor productivity (TFP) and financial development across countries. Financial frictions distort the allocation of capital and entrepreneurial talent across production units, adversely affecting measured productivity. In our model, sectors with larger scales of operation (e.g., manufacturing) have more financing needs, and are hence disproportionately vulnerable to financial frictions. Our quantitative analysis shows that financial frictions
account for a substantial part of the observed cross-country differences in output per worker, aggregate TFP, sector-level relative productivity, and capital-to-output ratios. (JEL E23, E44, O41, O47)
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Authors:
Buera, Francisco J. (UCLA)
Kaboski, Joseph P. (U Notre Dame)
Shin, Yongseok (Washington U in St Louis and Federal Reserve Bank of St Louis)
JEL Classifications:
E23: Macroeconomics: Production
E44: Financial Markets and the Macroeconomy
O41: One, Two, and Multisector Growth Models
O47: Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
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