The University of Southampton
University of Southampton Institutional Repository

Productivity in economies with financial frictions: facts and a theory

Meza, Felipe and Benjamin, David (2006) Productivity in economies with financial frictions: facts and a theory , Southampton, UK University of Southampton, Economics Division, School of Social Sciences (Discussion Papers in Economics and Econometrics, 613).

Record type: Monograph (Project Report)


We document and account for two facts regarding the relation between international interest rates and total factor productivity (TFP) in a sample of developing countries. First, there is a negative correlation between both variables at quarterly frequency. Second, the share of agricultural labor and interest rates are positively correlated, whereas the share of agricultural labor and TFP are negatively correlated. Manufacturing labor shows opposite correlations. These relationships are particularly strong in the aftermath of financial crises. We then construct a model in which the presence of costly intermediation can produce such relationships. We show that, after increases in interest rates, a requirement to intermediate factors of production in high productivity sectors, like manufacturing, causes resources to leave these sectors. Resources end up in low productivity sectors, like agriculture, where intermediation is cheaper. This lowers aggregate productivity. We show that the channel we identify is quantitatively important in the case of Korea after the 1997 financial crisis.

PDF 0613.pdf - Other
Download (475kB)

More information

Published date: 2006
Keywords: small open economy, financial intermediation, total factor productivity


Local EPrints ID: 42765
PURE UUID: 41f55c5f-6adc-40c8-8478-810070ba0c2f

Catalogue record

Date deposited: 12 Jan 2007
Last modified: 17 Jul 2017 15:21

Export record


Author: Felipe Meza
Author: David Benjamin

University divisions

Download statistics

Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.

View more statistics

Atom RSS 1.0 RSS 2.0

Contact ePrints Soton:

ePrints Soton supports OAI 2.0 with a base URL of

This repository has been built using EPrints software, developed at the University of Southampton, but available to everyone to use.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we will assume that you are happy to receive cookies on the University of Southampton website.