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We build and estimate a model of growth and finance in which banks adopt technology embedded in capital goods produced by entrepreneurs, and agents choose whether to be workers or capital goods-producing entrepreneurs. In this setting, aggregate firm productivity affects bank efficiency and vice versa. We find that closing down the technology adoption by banks reduces aggregate productivity growth by 16.7 percent. Empirical evidence based on US Call Report Data is consistent with the bank technology adoption mechanism at the core of the model.

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