Optimal Growth Policies in a Two-Sector Model with Financial Market Imperfections

Nguyen, Quoc Hung (2018): Optimal Growth Policies in a Two-Sector Model with Financial Market Imperfections.

Abstract

This paper studies the pro-growth policies in an endogenous growth model where heterogeneous entrepreneurs face collateral constraints, skilled workers accumulate human capital, and the government intervenes to promote human and physical capital formation. It shows that the model has a balanced-growth path whose rate depends on government policy and financial development level. The theoretical analysis also shows that when the distribution of idiosyncratic productivity is heavy-tailed, the government must subsidize productive entrepreneurs to achieve optimal pro-growth policies.

• Item Type: MPRA Paper
• Language: English
• Keywords: Heterogeneity; Financial Deepening; Growth Policies
• Subjects: E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E10 - General; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance

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