(Non-Monotonic) Effects of Productivity and Credit Constraints on Equilibrium Aggregate Production in General Equilibrium Models with Heterogeneous Producers

Pham, Ngoc-Sang (2025): (Non-Monotonic) Effects of Productivity and Credit Constraints on Equilibrium Aggregate Production in General Equilibrium Models with Heterogeneous Producers.

Abstract

In a market economy, the aggregate production level depends not only on the aggregate variables but also on the distribution of individual characteristics (e.g., productivity, credit limit, ...). We point out that, due to financial frictions, the equilibrium aggregate production may be non-monotonic in both individual productivity and credit limit. We provide conditions under which this phenomenon happens. By consequence, improving productivity or relaxing credit limit of firms may not necessarily be beneficial to economic development.

• Item Type: MPRA Paper
• Language: English
• Keywords: Productivity shock, financial shock, credit constraint, heterogeneity, productivity dispersion, distributional effects, efficiency, general equilibrium.
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling; D - Microeconomics > D5 - General Equilibrium and Disequilibrium; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; G - Financial Economics > G1 - General Financial Markets; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity

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