Growth, Bubbles and Entrepreneurs

15:30-17:00, Friday, November 6, 2020

Tencent Meeting (Meeting ID: 439 134 645)

Dr. Xavier RAURICH is now a professor at Department of Economics, Universitat de Barcelona. He Obtained his Ph.D. in Economics at Universitat Autònoma de Barcelona in 1998. His research interests are Macroeconomics, Economic Growth and Development. His articles have been published in Journal of Public Economics, Economic Journal, International Economic Review, among others.

Entrepreneurship, growth, and productivity are larger during periods of rapid asset price growth. We interpret these periods as examples of financial bubbles and show that a model in which individuals live for three periods and are heterogeneous  in both wages and the return of productive investment explains these facts. The heterogeneity in the return of investment separates individuals between savers and entrepreneurs. Savers buy financial assets, which are deposits or bubbles. Entrepreneurs incur  in a start-up cost and borrow to invest in productive capital in the second period of life. The bubble provides liquidities to credit-constrained entrepreneurs, increasing investment. We show that the number of entrepreneurs is larger with a bubble if the  start-up cost is large enough. The increase in the number of entrepreneurs and the liquidity provided by the bubble explain that growth can be larger with bubbles. Finally, productivity may be larger when the liquidity provided by the bubble further increases  the investment of more productive entrepreneurs. This occurs when the return of investment is more correlated with wages in the first period of life than with wages in the second period. 

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