From Firm Productivity Dynamics to Aggregate Efficiency

The author constructs a quantitative framework to evaluate how financial constraints can reduce productivity growth at the firm level and result in lower aggregate productivity. The author considers a model where firms are able to invest in innovat...

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Main Author:	Lopez-Martin, Bernabe
Format:	Journal Article
Language:	English
Published:	Published by Oxford University Press on behalf of the World Bank 2019
Subjects:	FIRM PRODUCTIVITY PRODUCTIVITY LABOR MARKET AGGREGATE EFFICIENCY TOTAL FACTOR PRODUCTIVITY KNOWLEDGE CAPITAL ENTREPRENEURSHIP
Online Access:	http://documents.worldbank.org/curated/en/478111565605990041/From-Firm-Productivity-Dynamics-to-Aggregate-Efficiency http://hdl.handle.net/10986/32231

id	okr-10986-32231
recordtype	oai_dc
spelling	okr-10986-322312021-05-25T10:54:42Z From Firm Productivity Dynamics to Aggregate Efficiency Lopez-Martin, Bernabe FIRM PRODUCTIVITY PRODUCTIVITY LABOR MARKET AGGREGATE EFFICIENCY TOTAL FACTOR PRODUCTIVITY KNOWLEDGE CAPITAL ENTREPRENEURSHIP The author constructs a quantitative framework to evaluate how financial constraints can reduce productivity growth at the firm level and result in lower aggregate productivity. The author considers a model where firms are able to invest in innovation in order to increase their productivity, or knowledge capital. This investment is a costly and uncertain enterprise. As the capacity to obtain external funds is diminished, resources allocated to this effort will be reduced due to different mechanisms at work. First, the return of this investment in the case of success may be diminished by the inability to quickly increase production capacity if the credit necessary to do so is scarce (i.e., if entrepreneurs cannot rent the optimal level of physical capital). Second, financial constraints reduce profits obtained by entrepreneurs and therefore the amount of assets they are able to accumulate in every period. Finally, financially underdeveloped economies will be characterized by a lower average ability of entrepreneurs. This is due to the lower equilibrium wage in the economy, which results in a larger mass of individuals opting to set up firms. In the margin, these individuals tend to have lower ability to manage a firm and relatively low prospects of generating firm productivity growth through innovation. 2019-08-13T16:55:10Z 2019-08-13T16:55:10Z 2016-04-12 Journal Article http://documents.worldbank.org/curated/en/478111565605990041/From-Firm-Productivity-Dynamics-to-Aggregate-Efficiency World Bank Economic Review http://hdl.handle.net/10986/32231 English CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Published by Oxford University Press on behalf of the World Bank Publications & Research :: Journal Article Publications & Research Latin America & Caribbean Mexico
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	FIRM PRODUCTIVITY PRODUCTIVITY LABOR MARKET AGGREGATE EFFICIENCY TOTAL FACTOR PRODUCTIVITY KNOWLEDGE CAPITAL ENTREPRENEURSHIP
spellingShingle	FIRM PRODUCTIVITY PRODUCTIVITY LABOR MARKET AGGREGATE EFFICIENCY TOTAL FACTOR PRODUCTIVITY KNOWLEDGE CAPITAL ENTREPRENEURSHIP Lopez-Martin, Bernabe From Firm Productivity Dynamics to Aggregate Efficiency
geographic_facet	Latin America & Caribbean Mexico
description	The author constructs a quantitative framework to evaluate how financial constraints can reduce productivity growth at the firm level and result in lower aggregate productivity. The author considers a model where firms are able to invest in innovation in order to increase their productivity, or knowledge capital. This investment is a costly and uncertain enterprise. As the capacity to obtain external funds is diminished, resources allocated to this effort will be reduced due to different mechanisms at work. First, the return of this investment in the case of success may be diminished by the inability to quickly increase production capacity if the credit necessary to do so is scarce (i.e., if entrepreneurs cannot rent the optimal level of physical capital). Second, financial constraints reduce profits obtained by entrepreneurs and therefore the amount of assets they are able to accumulate in every period. Finally, financially underdeveloped economies will be characterized by a lower average ability of entrepreneurs. This is due to the lower equilibrium wage in the economy, which results in a larger mass of individuals opting to set up firms. In the margin, these individuals tend to have lower ability to manage a firm and relatively low prospects of generating firm productivity growth through innovation.
format	Journal Article
author	Lopez-Martin, Bernabe
author_facet	Lopez-Martin, Bernabe
author_sort	Lopez-Martin, Bernabe
title	From Firm Productivity Dynamics to Aggregate Efficiency
title_short	From Firm Productivity Dynamics to Aggregate Efficiency
title_full	From Firm Productivity Dynamics to Aggregate Efficiency
title_fullStr	From Firm Productivity Dynamics to Aggregate Efficiency
title_full_unstemmed	From Firm Productivity Dynamics to Aggregate Efficiency
title_sort	from firm productivity dynamics to aggregate efficiency
publisher	Published by Oxford University Press on behalf of the World Bank
publishDate	2019
url	http://documents.worldbank.org/curated/en/478111565605990041/From-Firm-Productivity-Dynamics-to-Aggregate-Efficiency http://hdl.handle.net/10986/32231
_version_	1764476087332503552

From Firm Productivity Dynamics to Aggregate Efficiency

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