Firm heterogeneity,credit constraints,and endogenous growth

This paper is in general concerned with the role of firm heterogeneity for economic growth. We focus on heterogeneous productivity in innovation and credit constraints of firms within a semi-endogenous growth model reflecting recent empirical findings on firm heterogeneity. Our model allows for an explicit solution for transitional growth and for the balanced growth path level of innovations or ideas. The model predicts an optimal degree of heterogeneity in the presence of an endogenous firm distribution. This enables us to draw inference about the impact of key policy parameters of the model on these quantities and to draw conclusions about firm and capital market related policies.