Interactions between financial constraints and economic growth

Abstract

The financial economy and the real economy are interconnected through various, complex, and evolving transmission mechanisms, whose literary coverage is far from comprehensive. In this context, we wish to contribute to the literature on the interactions between financial constraints and economic growth. We introduce financial dynamics in the R&D-based growth literature, by bringing Bernanke, Gertler and Gilchrist’s (1999) informational asymmetries into Romer’s (1990) growth model. With the developed framework, our main goal is to examine if and how such asymmetries impact economic growth. We find that the overall impact of this form of financial constraints on long-term growth is negative.