In this paper, we propose an interpretation of these events in which the prospect of a New Economy plays a key role in generating the other events. More specifically, we show that the mere prospect of high future productiv- ity growth can generate sizable gains in current productivity, as well as an economic expansion, a stock market boom and a financing boom for new firms. There are two main ingredients to our story: financing constraints due to limited contract enforceability and firm-level diminishing returns to scale. Financing constraints generate an endogenous size distribution for firms. Diminishing returns make aggregate productivity dependent on the size distribution of firms. In particular,.
