Entrepreneurship, Growth and Productivity with Bubbles

The real side of stock market exuberance: bubbles, output and productivity at the industry level

“…2020; Clain‐Chamosset‐Yvrard et al . 2022). However, a different class of models yields a different prediction—the possibility of issuing overvalued assets (such as stocks) provides firms with a subsidy and allows unproductive firms to enter or inefficient incumbents to remain active.…”

“…Although most of the recent literature shares the common prediction that bubbles stimulate production, there is substantial disagreement about the underlying mechanisms. For example, several theories suggest that bubbles can be expansionary by triggering a reallocation of resources from unproductive to productive (but constrained) entrepreneurs, thereby resulting in greater aggregate total factor productivity (TFP) (Martin and Ventura 2012;Miao and Wang 2012;Hirano and Yanagawa 2017;Hashimoto et al 2020;Clain-Chamosset-Yvrard et al 2022). However, a different class of models yields a different prediction-the possibility of issuing overvalued assets (such as stocks) provides firms with a subsidy and allows unproductive firms to enter or inefficient incumbents to remain active.…”