Gaspar Alarcón

Does improving the access to financing lead to more productive firms? We study the implications of complementarity on productivity under financial frictions. We develop a model of heterogeneous producers facing collateral constraints and a technology adoption decision. Producers’ choices are connected through the final good market, creating complementarity in adoption. We find that more complementarity between producers amplifies the effects of financial frictions through more sensitive adoption. In a highcomplementarity economy, adopters increase up to 117% relative to the self-financing economy. Misallocation is the main driver of TFP loss only when complementarity is low. Our results imply that economies with high complementarity benefit more from financial liberalizations, incentivizing the adoption of more productive technologies.