Firm Entry Under Financial Frictions

18 Pages Posted: 20 Apr 2013

See all articles by Miguel Casares

Miguel Casares

Universidad Pública de Navarra

Jean‐Christophe Poutineau

Université de Rennes 1

Date Written: May 2013

Abstract

How does a general‐equilibrium model behave when incorporating competitive firm entry that requires external finance? After conducting a steady‐state analysis, we reach three main results. First, the financial constraint has contractionary effects on both equity investment and the labor supply as they are inversely related to the marginal finance cost. Second, the dynamics of firm creation and destruction amplify the impact of changes in either productivity or banking efficiency due to procyclical firm entry. Third, a higher elasticity of substitution (that implies a lower mark‐up) cuts the number of firms and makes aggregate output fall.

Suggested Citation

Casares, Miguel and Poutineau, Jean-Christophe, Firm Entry Under Financial Frictions (May 2013). Review of Development Economics, Vol. 17, Issue 2, pp. 301-318, 2013. Available at SSRN: https://ssrn.com/abstract=2254214 or http://dx.doi.org/10.1111/rode.12033

Miguel Casares (Contact Author)

Universidad Pública de Navarra ( email )

Departamento de Economía
31006 Pamplona
Spain

Jean-Christophe Poutineau

Université de Rennes 1 ( email )

11 Rue Jean Macé
Rennes, Rennes 35700
France

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