Add to ORKGThis paper analyzes the existence and the e¤ects of bubbles in an endogenous growth model with \u85nancial frictions and heterogeneous investments. Bubbles are likely to emerge when the degree of pledge-ability is in the middle range. This suggests that improving the -nancial market might enhance the possibility of bubbles. We also \u85nd that when the degree of pledgeability is relatively low, bubbles boost long-run growth. When it is relatively high, bubbles lower growth. Moreover, we examine the e¤ects of bubbles bursting, and show that the e¤ects depend on the degree of pledgeability, i.e., the quality of the nancial system