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Employment Flows with Endogenous Financing Constraints

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  • Shuyun May Li
Abstract
Empirical studies document that resource reallocation across production units plays an important role in accounting for aggregate productivity growth in the U.S. manufacturing. Distortions in financial market could hinder the reallocation process and hencemay adversely affect 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 U.S. 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.

Suggested Citation

  • Shuyun May Li, 2008. "Employment Flows with Endogenous Financing Constraints," Department of Economics - Working Papers Series 1045, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:1045
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    File URL: http://fbe.unimelb.edu.au/__data/assets/pdf_file/0020/802730/1045.pdf
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    References listed on IDEAS

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    4. Gnangnon, Sèna Kimm, 2019. "Financial Development and Tax Revenue in Developing Countries: Investigating the International Trade and Economic Growth Channels," EconStor Preprints 206628, ZBW - Leibniz Information Centre for Economics.

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    Keywords

    Costly external Finance; Reallocation; Output weighted aggregate productivity;
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