Finance and Misallocation: Evidence from Plant-level Data

Midrigan, Virgiliu; Xu, Daniel Yi

doi:10.3386/w15647

Cited by 179 publications

(288 citation statements)

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“…The productivity of a firm increases with a move up the ladder. The fixed costs Mexico are not readily available, but Midrigan and Xu (2014) presented a number of 4.6 percent for South Korea, which is not too far from the 5.0 percent estimated for Mexico here. The Mexican ladder lies between the other two.…”

Section: Calibrating the Technology Ladderscontrasting

confidence: 60%

“…A firm in India, Mexico, and the United States 2 For example, Buera, Kaboski, and Shin (2011) and Midrigan and Xu (2014) focused on the importance of borrowing constraints. A firm in India, Mexico, and the United States 2 For example, Buera, Kaboski, and Shin (2011) and Midrigan and Xu (2014) focused on the importance of borrowing constraints.…”

Section: The Quantitative Illustrationmentioning

confidence: 99%

“…Midrigan and Xu (2014) argued that with stationary AR(1)-style productivity shocks (in logs), the capital required by a firm can be accumulated reasonably quickly by self-financing (see also Moll (2014) for an analysis of how the degree of persistence in technology shocks and the ability to self-finance interact). The structure of the technology adopted and the efficiency of the financial system are likely to be inextricably linked.…”

Section: Finance and Development: A Brief Literature Reviewmentioning

confidence: 99%

“…The structure of the technology adopted and the efficiency of the financial system are likely to be inextricably linked. Finally, given that the main focus of their paper was on the impact of finance on the misallocation of capital, and not technology adoption, Midrigan and Xu (2014) did not try to match their extension with facts about the firm-size distribution. Intuitively, one would expect a firm to be much more capable of self-financing a project over time if the profile for TFP is flat, implying a flat profile of capital, as opposed to one where productivity perpetually grows in a convex manner requiring ever-increasing levels of investments.…”

Section: Finance and Development: A Brief Literature Reviewmentioning

confidence: 99%

“…In fact, when productivity shocks are independently and identically distributed over time, contracts can be designed such that the deviations from first-best allocations are relatively small, as noted in Marcet and Marimon (1992). But the structure of the technology being 3 Strictly speaking, the random component of the productivity shocks in Midrigan and Xu (2014) follows a Markov chain, but the shocks are tuned to resemble an AR(1) process. But the structure of the technology being 3 Strictly speaking, the random component of the productivity shocks in Midrigan and Xu (2014) follows a Markov chain, but the shocks are tuned to resemble an AR(1) process.…”

Section: Finance and Development: A Brief Literature Reviewmentioning

confidence: 99%

See 4 more Smart Citations

Why Doesn't Technology Flow From Rich to Poor Countries?

Cole¹,

Greenwood²,

Sánchez³

2016

Econometrica

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What is the role of a country's financial system in determining technology adoption? To examine this, a dynamic contract model is embedded into a general equilibrium setting with competitive intermediation. The terms of finance are dictated by an intermediary's ability to monitor and control a firm's cash flow, in conjunction with the structure of the technology that the firm adopts. It is not always profitable to finance promising technologies. A quantitative illustration is presented where financial frictions induce entrepreneurs in India and Mexico to adopt less‐promising ventures than in the United States, despite lower input prices.

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Section: Calibrating the Technology Ladderscontrasting

confidence: 60%

Section: The Quantitative Illustrationmentioning

confidence: 99%

Section: Finance and Development: A Brief Literature Reviewmentioning

confidence: 99%

Section: Finance and Development: A Brief Literature Reviewmentioning

confidence: 99%

Section: Finance and Development: A Brief Literature Reviewmentioning

confidence: 99%

See 3 more Smart Citations

Why Doesn't Technology Flow From Rich to Poor Countries?

Cole¹,

Greenwood²,

Sánchez³

2016

Econometrica

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Finance and Productivity: A Literature Review

Heil

2019

Contemporary Topics in Finance

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This paper surveys a broad range of studies and highlights the main findings of the empirical literature regarding business finance and productivity. Numerous studies analyse the productivity effects of financial development and frictions. The results suggest: 1) Financial development likely has favourable effects on productivity growth; 2) financial frictions that impede the efficient flow of finance can mitigate the positive effects through a variety of channels; and 3) the magnitudes of productivity costs of financial frictions generally appear modest in financially developed economies but are considerably larger in developing economies. The paper also reviews studies of the influence of specific mechanisms on productivity, such as human capital, corporate finance, financial sector efficiency, equity finance and venture capital. Some policies that hamper productivity growth include inefficient insolvency regimes that impede exit of low-productivity firms, poorly developed contract monitoring and enforcement systems between banks and firms, collateral constraints that impair resource reallocation and imperfect bank supervisory practices that diminish productive capital reallocation through distorted lending practices.

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How do environmental regulations influence resource misallocation in China? The role of investment flows

Wang

2022

Bus Strat Env

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In recent years, the Chinese government has implemented numerous regulations to address environmental deterioration. Several studies have examined the effect of environmental regulation policies on China's economic performance. However, whether environmental regulations can alleviate China's resource misallocation problem—a critical issue in transitional economies—remains unclear. This study fills this gap in the literature by employing the difference‐in‐differences method to examine how environmental regulations affect resource misallocation. We found that stringent environmental regulations have reduced the extent of resource misallocation in China, with resource reallocation being the driving force behind this improvement. The emission reduction mandate reduces investment inflows and hinders firms' entry into regions with low total factor productivity, while directing the flow of resources to highly productive areas.

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Finance and Misallocation: Evidence from Plant-level Data

Cited by 179 publications

References 0 publications

Why Doesn't Technology Flow From Rich to Poor Countries?

Why Doesn't Technology Flow From Rich to Poor Countries?

Finance and Productivity: A Literature Review

How do environmental regulations influence resource misallocation in China? The role of investment flows

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