TY - JOUR
T1 - Finance and development
T2 - A tale of two sectors
AU - Buera, Francisco J.
AU - Kaboski, Joseph P.
AU - Shin, Yongseok
PY - 2011/8
Y1 - 2011/8
N2 - 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.
AB - 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.
UR - https://www.scopus.com/pages/publications/84860389706
U2 - 10.1257/aer.101.5.1964
DO - 10.1257/aer.101.5.1964
M3 - Article
AN - SCOPUS:84860389706
SN - 0002-8282
VL - 101
SP - 1964
EP - 2002
JO - American Economic Review
JF - American Economic Review
IS - 5
ER -