Séminaire KTO-OFCE-GREDEG - Carlos Carreira (University of Coimbra)

"Financial Constraints and Firm Dynamics in the Great Recession"
Quand ? Le 11-05-2017,
de 14:00 à 15:30
Où ? GREDEG - Salle Picasso
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Séminaire KTO-OFCE-GREDEG - Carlos Carreira (University of Coimbra)


"Financial Constraints and Firm Dynamics in the Great Recession"


RésuméRecessions are conventionally considered as times when low-productivity firms are driven out of the market. However, in the aftermath of the Great Recession, economic growth in most advanced economies has been unusually anaemic. In an attempt to explain this poor economic performance, we highlight the reduced efficiency in resource reallocation process during deep recessions. The suspect is financial constraints faced by firms. In this study we build a model in which recessions tend to be cleansing only in the absence of strong financial constraints. Since the best projects are deemed to require a higher level of investment, there is a bias towards the funding of projects that are less productive and less financially demanding if times are tight. Using Portuguese longitudinal data for manufacturing, construction and services industries, we do find a spike in firm exit in 2008–2012 vis-à-vis the 2004–2007 pre-recession period. We also found a considerable fraction of high-productivity firms shutting down. Our selected proxies for strictness in credit markets reveal that in deep recessions they are highly associated with increased firm exit and lower employment creation. Our results show that credit market stringency in conjunction with an unfavourable economic cycle is likely to generate a long-lasting destructive process. 


Joint with Paulino Teixeira (GEMF/CeBER and Faculty of Economics, University of Coimbra)

 

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