Capital-Reallocation Frictions and Trade Shocks

Lanteri, Andrea; Medina, Pamela; Tan, Eugene

doi:10.2139/ssrn.3473365

Cited by 9 publications

(10 citation statements)

References 26 publications

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“…Our analysis shows that the correct way to identify asymmetric policies in the presence of drift is through the excess asymmetry of adjusters relative to non-adjusters, as measured by Cov[τ x 2 ]. This statistic complements alternative methodologies that aim to diagnose whether frictions in capital allocation mainly affect upsizing firms or downsizing firms, as the ones put forward by Caballero and Engel (2007) and Lanteri, Medina, and Tan (2020).…”

Section: The Cir In Terms Of Microdatamentioning

confidence: 98%

“…11 Lanteri, Medina, and Tan (2020) made a similar point by showing that the transitional dynamics of domestic production following an import‐competition shock depend on the size of frictions in capital reallocation; and Moll (2014) showed in a model with financial frictions that the speed of transitions and the steady‐state level of capital misallocation jointly depend on the persistence of idiosyncratic productivity. …”

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confidence: 89%

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Aggregate Dynamics in Lumpy Economies

Baley

Blanco

2021

ECTA

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How does an economy's capital respond to aggregate productivity shocks when firms make lumpy investments? We show that capital's transitional dynamics are structurally linked to two steady‐state moments: the dispersion of capital to productivity ratios—an indicator of capital misallocation—and the covariance of capital to productivity ratios with the time elapsed since their last adjustment—an indicator of asymmetric costs of upsizing and downsizing the capital stock. We compute these two sufficient statistics using data on the size and frequency of investment of Chilean plants. The empirical values indicate significant effects of aggregate productivity shocks and favor investment models with a strong downsizing rigidity and random opportunities for free adjustments.

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Section: The Cir In Terms Of Microdatamentioning

confidence: 98%

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confidence: 89%

Aggregate Dynamics in Lumpy Economies

Baley

Blanco

2021

ECTA

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“…There is only very limited evidence on capital reallocation after trade shocks, even though, as argued by Dix-Carneiro (2014) , quantifying the mobility of capital, and its interaction with labor mobility frictions, is essential to understanding the full transitional dynamics of the economy after a trade shock. A notable exception is Antràs and Caballero (2009) who focus on the effects of a trade shock on international capital flows across countries, and also Lanteri et al (2019) who look at the reallocation of machines and physical capital in Peru after the China shock.…”

Section: Introductionmentioning

confidence: 99%

Trade Shocks and Credit Reallocation

2020

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The effect of trade liberalization on welfare and economic activity remains one of the most important questions in economics. The literature identifies a number of key determinants that reduce the potential gains from trade, by focusing on frictions to labor mobility across regions or sectors. This paper contributes to this debate by exploring a novel channel, namely the reallocation of credit in the aftermath of a trade shock. We find that there are endogenous financial frictions that arise from trade liberalization and spillovers between losers and winners from trade that go through banks, as banks can be negatively affected by a trade shock through the portfolio of firms they lend to. Using data from the Italian credit registry, matched with bank and firm level data, we follow the evolution of bank and firm activities prior to and after the entry of China into the WTO. We identify the sectors most affected by import competition from China and estimate the transmission of this trade shock from firms to their lending banks, and the consequence of the shock on banks' lending to other firms. We find that, controlling for credit demand, banks exposed to the China shock decrease their lending relative to non-exposed banks. Importantly, this lending is reduced both for firms exposed to competition from China and to those that are not and that we should expect to expand. The main mechanism is related to the reduction of the core capital of banks, and their resulting funding capacity, through the rise of non-performing loans. We quantify the impact of this effect on real outcomes such as employment, investment, and output and we find relevant aggregate implications. These findings provide evidence that following a trade shock, bank lending has a key impact on the reallocation channel and on the potential gains from trade.

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“…The latter tightens the funding constraints of banks, which, in turn, slows down factor reallocation to expanding export firms that are not primarily affected by competition from China. Other papers that identify frictions which slow down capital reallocation after trade shocks are Bloom et al (2016), Berthou et al (2019), and Lanteri et al (2020).…”

Section: Relation To the Literaturementioning

confidence: 99%

Trade and credit reallocation: How banks help shape comparative advantage

Keuschnigg

Kogler

2021

Rev International Economics

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Innovation and trade are major sources of structural change. Innovative firms with better products expand on world markets, while less productive firms shrink. Capital and labor must flow from declining toward expanding firms. Reallocation is especially important in innovative sectors with short product cycles and high turnover. But this process is, by no means, without frictions. Whenever capital and labor are locked into current uses, a country cannot fully exploit its comparative advantage in reallocation-intensive, innovative sectors.

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Capital-Reallocation Frictions and Trade Shocks

Cited by 9 publications

References 26 publications

Aggregate Dynamics in Lumpy Economies

Aggregate Dynamics in Lumpy Economies

Trade Shocks and Credit Reallocation

Trade and credit reallocation: How banks help shape comparative advantage

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