This paper documents that financial crises in emerging countries involve large and persistent losses in labor productivity. It then presents a model which features endogenous TFP growth through the adoption of new varieties of intermediates, and in which an agency problem in financial markets...

I construct a dynamic general equilibrium model where a recession is initiated by losses suffered by financial institutions, and exacerbated by their inability to extend credit to the real economy. The event that triggers the recession is similar to a redistribution shock: a small sector of the...