Costly external finance,reallocation, and aggregate productivity |
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Authors: | Shuyun May Li |
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Institution: | (1) Department of Economics, The University of Melbourne, Melbourne, VIC, 3010, Australia |
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Abstract: | Empirical studies document that resource reallocation across production units plays an important role in accounting for aggregate
productivity growth in the US manufacturing. Financial market frictions could distort the reallocation process and hence may
hinder aggregate productivity growth. This paper studies the quantitative impact of costly external finance on aggregate productivity
through resource reallocation across firms with idiosyncratic productivity shocks. A partial equilibrium model calibrated
to the US manufacturing data shows that costly external finance causes inefficient output reallocation from high productivity
firms to low productivity firms and as a result leads to a 1 percent loss in aggregate TFP. |
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