This paper conducts an empirical
research on the relations between liquidity constraints and economic growth.
Based on Kiyotaki & Moore (2019), we establish our econometric model and do
regressions with a panel data covering 33 countries from 1996 to 2017.
Countries in our sample include developed and developing countries. We find
that increasing liquidity premium by 1%, will decrease the growth rate of
capital by 0.31%, and that of GDP by 0.24%. Moreover, developing countries
appear to be more sensitive to the change of liquidity premium, with more
decreasing by 0.31% on capital growth and 0.22% on GDP growth than developed
countries, when equally faced with 1% increase of liquidity premium. It can be
inferred that different level of liquidity constraints, leading to a different
level of liquidity premium, partially explain the differences of growth across
constraints, monetary model, economic divergence