A Simple Model of Endogenous Growth with Financial Frictions and Firm Heterogeneity

This paper constructs a simple model of endogenous growth with ?financial frictions and ?firm heterogeneity. In the presence of fi?nancial constraints and heterogeneity in pro- duction efficiency of fi?rms, the fi?rms whose efficiency exceeds the cutoff level produce and the entrepreneurs who own those fi?rms become borrowers. We show that even if production technology of each fi?rm has an Ak property, the aggregate economy has transition dynamics and that the balanced growth rate depends on the aggregate distribution of wealth between rentiers and entrepreneurs.