Abstract
In this paper we present a macroeconomic model in which financial factors are the engine of growth and business fluctuations. The starting point of our modelling strategy is the approach pioneered by Bernanke and Gertler (1989) in which firms’ financial conditions affect capital accumulation. They assume that the share of entrepreneurs in total population is exogenous. In our setting, on the contrary, the entrepreneurial share of population is endogenously determined. In equilibrium it is an increasing function of savings committed to the investment projects (firms’ net worth). In other words, the higher firms’ net worth, the higher the share of entrepreneurs in total population and capital accumulation. In a sense, this is asimple theory of (aggregate) start-ups.This is an important phenomenon for transition economies in the early stages of their development. We extend the basic model to explore also the impact of Government spending and the consequences of the opening-up of the economy.
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© 2003 Springer-Verlag Berlin Heidelberg
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Gatti, D.D., Longaretti, R.D. (2003). Endogenous Startups, Financial Conditions, and Capital Accumulation. In: Colombo, E., Driffill, J. (eds) The Role of Financial Markets in the Transition Process. Contributions to Economics. Physica, Heidelberg. https://doi.org/10.1007/978-3-642-57372-9_4
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DOI: https://doi.org/10.1007/978-3-642-57372-9_4
Publisher Name: Physica, Heidelberg
Print ISBN: 978-3-7908-0004-3
Online ISBN: 978-3-642-57372-9
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