Endogenous growth, firm heterogeneity and the long-run impact of financial crises

How does firm heterogeneity affect the long-run consequences of financial crises? To answer this question, I introduce aggregate shocks and differences in innovative potential firms into a Schumpeterian endogenous growth model. Firm amplifies effects crisis on innovation, because small are both relatively more than large hit harder by crisis. A calibration using manufacturing data from Spain shows that representative-firm model which ignores these mechanisms underestimates output losses due to 2008-2013 around 40%.